Everything you need to know to avoid requesting something unworkable without practical results.

External Audit 102

I prepared a concise resume of auditing procedures in a Football Club, as follows:

CASH & EQUIVALENTS: the auditor requests bank statements and reconciliations for analysis and

cross-checking. They send balance confirmation letters to all financial

institutions, including those with no balance. Financial institutions that have

already operated and no longer operate will receive those letters too.

ACCOUNTS RECEIVABLE: sends balance confirmation letters to third parties again, and we will have two types of analysis; i) confrontation with documentation and financial transactions (extracts), and ii) study of the quality of these accounts receivable, their aging, and the need to recognize provisions for bad debts.

FIXED ASSETS: basically, they will review the additions by sampling, checking if the items were capitalized in the wrong way or not. They will validate depreciation and amortization calculations, test some write-offs, and analyze movements. Finally, suppose you are lucky to have hired a good auditor. In that case, they will perform impairment tests, which are procedures to assess the need to recognize losses on these assets, even if temporary.

ACCOUNTS PAYABLE / SUPPLIERS: again, a festival of confirmation letters, verification of analyzes, and contracts by sampling. If your client is a notoriously deadbeat club, it is necessary to carry out a procedure called omitted liabilities. The auditor will take the subsequent bank records and tie disbursed amounts with recorded provisions. Well, at least they should do that.

DEBT/LOANS: a new wave of balance confirmation letters, cross-checking with statements and contracts.

TAXES: a review of calculation memories, an examination of paid slips, and several tests to estimate taxes due. Here it is imperative to remember the concept of materiality and compliance issues. Unfortunately, the Financial Statements audit falls far short of a tax audit regarding procedures and review of practices.

CONTINGENCIES: extensive letters were sent to the club’s lawyers to inform them of all the claims, updated values, and the probability of losing them. In a regular Brazilian club, where dozens of issues pop up weekly, it isn’t straightforward to be done. At some point, it is necessary to set a cut-off date, and even with the application of procedures on subsequent events, you will not be able to audit this.

As this thread mentioned, the litigation environment should be considered in the acceptance process. The volume of claims amazes any Big4 and any auditor minimally concerned with their reputation.

REVENUE / EXPENSES: We will have an excessive documentary examination and confrontation with contracts and extracts here. But note that you will be confronted with what is written and not the business conditions. There is zero procedure to analyze whether player A was well or poorly sold, whether commissioners are receiving a lot or a little money, whether the division of economic rights is fair, etc.

When it comes to expenses, the auditor needs to look for elements that the service provided, the right or the acquired good exists, or the service has been performed, which happens by random sampling.

You cannot have a pre-chosen items sample; audit standards require the aleatory.

There are more procedures, but at this point, we have already realized that the audit does not correspond to the desire to hunt witches, nor does it have an extension that allows us to say that everything wrong has been identified.

Remember that some clubs adjusted their previous Financial Statements, which had been audited, without anything being pointed out as an error or exception in the accounts that subsequently underwent adjustments.