We have taken over an audit client last year and are preparing their accounts first time. I won't go into detail of many issues (some material) that have come to light with previous year audited accounts but it will be fair to say it appears no real work was done on client draft TB.
With the above in mind, it is obvious no questions were asked to the client and "personal expenses" have slipped through cost of sales etc. With current year accounts we have identified significant level of expenses that "appears" to be private and were posted as business expenses.
As an example, the client has paid approx. £60k towards various overseas trips which are recorded as business travel. This includes travel to various countries such as Mauritius, Bahrain, Sri Lanka etc. where there is no customer or supplier and some at a time of Christmas / Easter holidays. The client claims these were business travel to attend exhibitions, meet potential new customers, suppliers and so on even though he is not able to produce any evidence (appointment notes, name of customers/suppliers visited etc) to substantiate the claim.
I am of the opinion this cannot be allowed as business expenses and need to be moved to director account unless we are satisfied these were genuine business expenses. In a worst case scenario if this is allowed to be business expense no CT relief should be claimed on these. My senior colleague is of the view client representation of this to be a business expense is sufficient and we need to allow these as business expenses and CT relief claimed. The client will sign letter of representation.
What does other respectable members think to be the correct approach?