student of finance, accounting and audit department of National University of Ostroh academy

Haletska T.I.

PhD, senior lecturer

PECULARITIES OF PERFORMANCE OF AN AUDIT IN SMALL ENTERPRISES

Annotation In the article the method and peculiarities of the performance of an audit of small enterprises are investigated.

Key words: audit, International auditing standard 1005 “Peculiarities of an audit of small enterprises”, fiscal accounting, auditor.

Problem statement Small business is an essential element of the market economy in Ukraine and in the world and occupies a significant market share both in number and in size of aggregate performance. Despite the fact that today audit of small businesses in Ukraine is not mandatory, more and most of small organizations appeal for help in the design of fiscal accounting, preparation for control and more to auditors. The increase of the interest from both theorists and practitioners is a sign of the relevance of this issue and it encourages to a more detailed investigation of the peculiarities of the performance of an audit on small enterprises.

Analysis of recent research and publications. The following local scientists studied the question of audit methodologies: M. Biluha, N. Dorosh, O. Petryk, V. Savchenko, B. Usach, L. Chernelevskyi and others.

The purpose and objectives of the study is to identify the characteristics of functioning of an audit of small enterprises.

Presentation of main material. Since 01.05.2011 the International standard of quality control , audits , reviews, other assurance and related services are used as international standard in Ukraine. Any national standard in Ukraine does not exist. An audit of a small business is regulated only by international auditing standards 1005 “Peculiarities of audit of small enterprises” [5].

According to it the audit of a small business is different from the big audit entity in a way that records of small business are simplified, and the audit itself is not so much complicated and requires fewer assistants.

A small enterprise is called any enterprise if:

• a small number of people has the ownership right for the company (often only one person);
• it has one or more of the following characteristics:
  • immaterial amount of income;
  • simplified system of accounting;
  • there is a limited system of internal control and , along with it , the ability to ignore them. [1]

Along with it, the peculiarity of an audit of small enterprises is that it is characterized by a limited internal control; gubernatorial control on them is often made by owner-manager. There is a risk of neglecting head control measures that could lead to fraud and distortion of information.

An engagement letter signed by the head during the performance of an auditing control on small businesses includes the written confirmation of the explanations provided by management in connection with audit in which they recognize their responsibility for provision reliable financial statements in accordance with the relevant Fiscal Accounting basis and approves the financial statements.

The main feature of audit of small enterprises is the fact that due to small amounts of transactions, which are carried out in the company, the auditor during the audit control covers 100% of the elements of the total amount of the checked information.

During the audit, the auditor or audit firm reflects in working papers the following information:

• audit planning;
• audit program;
• results;
• conclusions [2].

When assessing small business auditors take into account the following factors:

• reasons of distortion of financial statements (for example, owner- manager dependence on the successful performance of the company ) and the possibility of statements distortion;
• availability of distribution of its economic and commercial transactions;
• suppression of income by the owner of enterprise (the level of life of the company manager differs from the amount indicated in the tax return);
• frequent change of professional consultants;
• whether there were cases of the performance of an audit in a very short time, cases of delay of the start date of the audit;
• performance of transactions, which have a significant impact on income in the end of the year;
• unusual transactions with related parties;
• payment of excessive fees or commissions to agents and consultants;
• credit accounts, which were not used for payments;
• advances payment granted to third parties or received from third parties for the supply of goods and services for which during unreasonably long term any goods or services were provided;
• disputes with tax authorities;
• unusual delay in providing explanations to the auditor concerning unusual transactions [3].

Also, developing an audit plan, the auditor usually assesses the materiality of information, in which information is essential if its omission or misstatement can influence the economic decisions of users taken on the basis of financial statements. This allows to identify the most important articles of financial statement, to which the auditor should pay attention when developing an audit strategy.

One of the approaches to quantitative assessment of materiality is the usage of the percentage of the main indicators of the financial statements, for example:

• profit or loss before tax (adjusted, if necessary, to the impact of overtime costs as owner- manager remuneration);
• income;
• result in the balance sheet;
• so on [4].

Thus there is no clear definition of materiality, instead a range of values is used. The upper limit of the range is responsible for relevant information and values that do not reach the lower limit of the range are considered immaterial. At the same time, the materiality of information is affected not only by quantitative but also qualitative factors.

During investigation, the auditor performs the following analytical procedures:

• comparison of the financial statements for the current year with figures of previous periods ;
• comparison of the financial statements to any budgets, forecasts or expectations of management personnel;
• analysis of changing trends of the important financial ratios;
• control of compliance of reflected changes in the financial statements of the company , which became known to the auditor;
• study of unexplained or unexpected financial statement items ;
• so on [5].

On the basis of the mentioned information, the audit report is made. In many cases, the auditor may express an unqualified opinion concerning the financial statements of small enterprises. However, there may be circumstances in which it is necessary to make a modified audit conclusion.

There are the following types of audit findings:

• an unqualified opinion (the provided information is complete and correctly reflects the assets and liabilities of the audited entity, which are checked). The fiscal accounting corresponds to actual accounting data, which means that accounting system complies with legal and regulatory requirements);
• clear opinion – there are not fundamental uncertainty (there are restrictions. which have little impact on the fiscal accounting);
• qualified audit opinion (when performing the audit control it is revealed that transactions are held with violations of the established order);
• negative opinion (substantial violations and distortions were identified, and there is a list of those violations annexed to the audit conclusion) [6].

Conclusions. To sum up, the peculiarities of audit of small enterprises lie in the following patterns:

• this type of audit is governed only by one international standard , 1005 standard “Peculiarities of audit of small enterprises”;
• during the audit of small enterprises it is necessary to carry out continuous inspection, during which 100% elements of the total amount is checked;
• small businesses have the option to use not only the forms of accounting , and its registers and tax systems;
• division of responsibilities in the company is limited , as the company employs a small number of employees.

All this must be considered when developing the methodology of audit of small enterprises.

References.

1. Arene A., Lobbek Dzh. Audit. Translation from English; mail editor phd. V.Sokolov. – M: Finance and Statistics, 1995 – 560 p.
2. Dorosh N.I. Audit: Theory and practice. – K., 2006. – 495 p.
3. International audit standards, giving assuranc and ethics / Trans. from Eng. O.V., Seleznov, O.L. Olhovikova, O.V. Hyk and others – K.: 2007. -1172 p.
4. Organization and methodology of audit of business function: Manual / main edition O.A. Petryk – K.: 2008. – 472 p.
5. Usach B.F. Audit: Manual – K., 2003. – 233 p.
6. Chernelevskyi L.M., Berenda N. I. Audit: theory and practice: Manual -K., 2008, – 560 p.

JEL-classification: I 12 – 23; M 41

Andrii Yevheniuk

4th year student National University of Ostroh academy

Aspects of credit transaction records in commercial banks of Ukraine

The article specifies the point, types and forms of credit transactions in commercial banks of Ukraine. Characteristic of organization aspects and credit transactions record in commercial banks is done. Also the essence and the aim of credit transactions control in banks is revealed. Ways of record improvement and credit transactions control in commercial banks are developed.

Key words: credit transactions, credit transactions control and record, credit arrangements, market economy, balance accounts.

Formulation of the problem. Nowadays a commercial bank in a developed market economy can provide a client with near 200 different bank products and services. Wide transaction diversification is aimed to keep clients and to stay commercially viable unless strong unfavorable conjuncture. No wonder that in all countries with market economy they remain the main operational branch in credit system.

Banks are one of the main structures in market economy. Current state of Ukraine economy development needs constant attention to bank system, and adopting a policy, which is able to create favorable conditions for its stable and effective functioning. Crediting is the core direction implemented by bank active transactions. The credit portfolio includes mostly from third to a half of all bank assets.

Analyses of recent researches and publications. This issue was investigated by the following scholars: Kindratska L. M., Herasymovych A. M., Aristova A. M., Shulga H. P., Kyrychenko O.A., Moroz A. M., Savluk S. I., Zhukov E. F. But questions towards systematisation techniques of credit transactions record needs further consideration.

The purpose and objectives of the study. The purpose of the study is to consider the methodology of bank credit transactions record and to suggest ways of its improvement.

Presenting main material. The economic content of crediting is investigated as a complex and multifaceted process with its principles, conditions and methods. Credit arrangements between the bank and the borrower are based on the principles of partnership. This means, that all the issues, related to the crediting process, are decided on contractual basis by the parties when entering into a credit agreement.

While holding credit police, commercial banks are guided by the bank interests the interest of its shareholders, investors, clients and also take into account national interests of the bank [1].

Credit operation is a type of bank active transactions related to the placement of attracted bank funds by granting them for temporary use or assuming obligations on providing funds for temporary use under certain conditions, and it also gives guarantees, warrantees, letters of credit, acceptances, avails, placing deposits, arranging factoring transactions, financial leasing, issuing credits in the form of discounting bills, in the form of repo transactions, any extension of discharge of dept, which is given in exchange for the debtor’s obligation to repay the owed amount, as well as obligation to pay for debt service and other charges of such sum (referred payment)[2].

In other words, as it is stated in the Law of Ukraine “About Banks and Banking Activity” [3], credit transactions consists in placing borrowed funds of legal entities (borrowers) and citizens on the behalf of bank, on its own terms and at its own risk.

Accounting estimate of credit transactions is based on generally accepted principles of international practice, in particular: constant functioning of the bank, sustainability of the accounting estimate, precautions, divisions of the accounting periods, dates of transactions, domination of the content over the form, evaluation of assets and liabilities, separate display of assets and liabilities.

Analytical accounting of the bank loans is maintained according to the types of credits by banks who gave those credits and terms of their maturity. There is a separate record for prolonged and overdue loans. According to the terms of usage, with determination of risks when stock formation, loans are divided into fixed-term loans of temporary financial difficulties, which arises because of production costs (commodity circulation), not secured by received costs in certain period of time. Long-term loans are given for more than one year. They are given if they are secured by collateral (property, property rights, securities), warrantee. They may be given in order to form fixed assets, for capital spending on reconstructions, modernization, expansion of already existing fixed assets, for new constructions, privatization and so on. Credit, with ended return period, set in loan agreement between the bank and the borrower, and not returned money to the borrower is called overdue. Deferred (prolonged)is a loan or its part, the return period of which is postponed at the request of the borrower for a later date.

Postponement of discharge of the loan is made as an additional agreement to the main credit arrangement and is usually accompanied with higher charge of interest rates. To deferred credits refer prolonged loans (credits). Nowadays banks take into account prolonged credits when credit classification into groups of risk in order to calculate assets for credit risks as the quality of debt service. As a result of classification of credit portfolio the category of each credit transaction is determined: “standard”, “under control”, “sum standard”, “doubtful”, or “hopeless”[4].

Accounting operations by credit transaction concern:

1) record of the par value of the loan and change of the main sum of the debt;

2) record of interest and commission income.

Record of the par value of the loan depends on the method of payment of interests: in a period, during the period. In case of the usage of the method “in a period”, interest may be paid periodically or at maturity, determined by credit agreement, and the sum of the par value of the loan and sum, transferred to the current account (or a correspondent bank account)-are the same.

Classification of accounts in the balance sheet for credit transactions record is shown below (pic.1):

Source: developed by the author, based on[1].

When applying the method “during the period” interest may be paid wholly or partially at the moment of granting a credit, by advance. Since the sum, transferred to the current account of the borrower will be reduced to the sum of interest, paid during the period, in financial record there is a separate account of the sum of the par value credit and sum of interest, paid by advance. During function of credit agreement, the sum of advance interest should be depreciated [5].

 The credit portfolio of commercial bank should be viewed in two meanings: the broad and the narrow. In the broad it is understood as a complex management tool (assents and liabilities) of the bank; in the narrow as a set of credit tools for the main goals achievement.

So, the main goals of the formation of the credit portfolio are:

• the high level of income in recent period;
• high rate of the expected income in future long-term perspective;
• minimizing of the risk level of credit portfolio; compliance of the required liquidity credit portfolio;
• provision with maximize effect of tax incentives.

Effective asset management of your own credit portfolio by using the theories of commercial credit, conversion (transfer) of assets of the expected income allows commercial banks to get liquidity credit portfolio. Liquid credit portfolio for domestic banks in terms of its significant growth is vital [6].

The credit portfolio management should be viewed as a process, which consists of 5 consecutive stages:

• first- the choice of credit politics;
• second-credit market analysis;
• third- formation of credit portfolio;
• fourth- review of the credit portfolio; fifth- evaluation of the effectiveness of the credit portfolio.

Only a consistent and thorough compliance of each of the given stages will allow banks to improve credit portfolio management and avoid unexpected losses. For efficient crediting process, clear state economic policy is needed; the list of prioritized directions of investment, strengthening the protection of creditors rights and increase of society’s confidence in banks is needed as well.

If banks more carefully monitor the crediting process; enhance the transparence of bank procedures and technologies, it will ensure the quality of the credit portfolio, and therefore the efficiency of the bank institution functioning as a whole.

Conclusions. Therefore, to optimize the accounting procedures, that reflect the credit transactions, it is appropriate to offer the following steps: to introduce a methodology of record of delayed debt (prolonged), providing the accounts plan of accounting record of banks of Ukraine with accounts for record of the debt depending on the length of its origin (for example from 1 to 3 months, from 3 to 6 months an d from 6 months to 1 year).

So it will be easier for the banks to control the circulation of credit transactions according to classification – “standard”, “under control”, “substandard”, “doubtful”, “hopeless”, that will give an opportunity to resolve all the existing problems with the borrower and look for prospects towards the credit’s repayment. Also it is necessary to expand credit transactions record according to terms of giving or receiving, provided in accounts plan of banks of Ukraine for short-term debt record (up to 1 year), medium-term (1-3 years), and long-term debt record (more than 3 years).

References:

1. Hlebov N. V. Bank records: manual/ N. V. Hlebova, L. M. Styrenko. – H.: Edition Kharkiv National Economic University, 2009. – 306 p.
2. State Codex of Ukraine 11th May 2010 yaer. – H.: Odyssey, 2010. – 191 p.
3. The Law of Ukraine “About Banks and Bank Functioning” 20.09.2001 with changes made according to the Law № 928-VIII from 25.12.2015. [Electronic resourse]. – Access mode : www.zakon3.rada.gov.ua/laws/show/2121-14.
4. Krupka M. I. Trends and issues in formation of market of credit services in Ukraine I. Krupka, O. I. Skasko // Bulletin of the National Bank of Ukraine. – 2007. – № 11. – p. 31-32.
5. Bank transactions : manual / A. M. Moroz, M. I. Savluk, M. F. Puhovkina and others, edited by PHD professor A. M. Moroza. – K. : Kyiv National Economic University, 2000. – 384 p.
6. Horska O. V. Role of bank system in structural economic regulation / O. V. Horska, O. M. Fashchevska // Finance of Ukraaine. – 2003. – №12. – p. 107-113.