Experiences of Auditors and Tax Advisors with Accounting Errors: Empirical Evidence from the Czech Republic
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Experiences of Auditors and Tax Advisors with Accounting Errors: Empirical Evidence from the Czech Republic David Homola 1 & Marie Paseková 1 Michal Šindelář 2
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Published online: 13 August 2020 # International Atlantic Economic Society 2020
JEL M41 The primary function of financial reports is to represent economic phenomena. A faithful representation of these phenomena is one of the fundamental requirements for financial reporting. Information is expected to be complete, neutral and error free. However, unintentional errors occur occasionally, be it due to incorrect calculations, omissions or due to lack of knowledge of accountants. Auditors and tax advisors are usually the first ones to come in contact with financial reports. They are also usually the first to identify accounting errors. However, neither auditors nor tax advisors are able to identify all errors. Some errors remain in accounting and transitively in the financial statements. This paper focuses on the experiences of auditors and tax advisors from the Czech Republic (CR) with such errors. The paper investigates whether such errors occur, how often they occur, how large they are and how management responds to error detection. The study findings indicate that over 12% of respondents subsequently identify errors in financial statements. Being an auditor or tax advisor does not influence this fact. These errors are generally trivial and appear most commonly among expenses. However, management is not always willing to correct them. The research objective of this paper is to analyse and evaluate the occurrence of financial statement errors from the perspective of auditors and tax advisors. The
* David Homola [email protected]
1
Department of Finance and Accounting, Faculty of Management and Economics, Tomas Bata University in Zlín, Zlín, Czech Republic
2
Department of Financial Accounting and Auditing, Faculty of Finance and Accounting, University of Economics, Prague University, Prague, Czech Republic
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Homola D. et al.
research was performed utilising online questionnaires. The questionnaire was prepared in line with the results of previous research (e.g. Adali and Kizil, Emerging Markets Journal, 2017) and pre-tested on a sample of 15 respondents. The final 28-item online questionnaire was fielded in 2019 and took approximately 10 minutes to complete. Respondents were selected using random sampling from the list of CR tax advisors and the CR register of auditors. One hundred fifty-seven tax advisors and 148 auditors were contacted, but responses were received only from only 45 auditors and 57 tax advisors. Only completed questionnaires were retained. The final response rate was 33.4%. Descriptive and mathematical statistics were used to evaluate the data. The chisquare test of independence at a 0.05 significance level and Cramer’s V were used to identify the strength of dependence. Size of the errors was classified from insignificant to significant in relation to the total assets of the company. Using this categorization, errors over 1% of asset
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