What are audit adjustments, and why would the auditor change my accounts?

Why they arise Examples include missing accruals, wrong stock values, unrecorded liabilities, depreciation errors, misclassified director loans, and income recorded in the wrong period.

Process (HKSA 450)

1. The auditor accumulates the misstatements found, other than those that are clearly trivial, tells management in good time and asks for them to be corrected.
2. If management refuses, the auditor seeks to understand why and takes that into account.
3. The auditor judges whether uncorrected items are material, alone or together, by size and nature.
4. If material items remain uncorrected, the auditor considers a modified opinion (see the audit opinion answer) and tells those charged with governance about uncorrected items.
5. Management is asked in the representation letter whether it believes the effects of uncorrected items are immaterial, with a summary of those items attached.

Effect on you

• Profit and tax: adjustments change the accounting profit that feeds into the tax computation, so the tax numbers should be finalised after them.
• Bank and reporting: last-minute changes after management accounts have gone to a bank can cause confusion; tell lenders if the final figures differ.
• Fees: heavy adjustments mean more audit time, which can affect fees (see the fee answer).

Reducing them Close the books properly before fieldwork, reconcile bank accounts, and review stock, payables and accruals.

Adjusting entries should be posted in the company's accounting records, so the accounts continue to agree with the records (s.407).