Tax audit
A tax audit is a process of checking the financial and tax reporting of a company or an individual for compliance with current tax legislation. The purpose of a tax audit is to identify possible errors or violations in accounting and filing of tax returns, as well as to check the correctness of the calculation and payment of taxes.
The tax audit procedure usually includes the following stages:
- Planning: determining the scope of the audit, drawing up an audit plan.
- Collection of information: obtaining the necessary documents and data from a company or an individual.
- Analysis and verification: detailed analysis of financial and tax reporting, comparison with legal requirements.
- Detection of violations: detection of possible errors or inconsistencies.
- Reporting: drawing up a report on the results of the audit with recommendations for eliminating the identified violations.
A tax audit can be initiated both by the company's internal needs (internal audit) and by tax authorities (external audit).
Who audits the company's tax reporting?
The company's tax reporting can be audited by the following entities:
- Tax authorities: These are official state institutions responsible for monitoring the correctness and timeliness of tax payments. In Ukraine, this is the State Tax Service (SST). Tax inspectors have the right to conduct scheduled and unscheduled inspections of companies to detect violations of tax legislation.
- Internal auditors: These are employees of the company itself who work in the internal audit department. They conduct regular audits to ensure the correctness of accounting and tax records in accordance with the company's internal policies and procedures.
- Independent audit firms: These are external companies that provide audit services. They can be hired to conduct an independent audit of financial and tax reporting in order to confirm its reliability and compliance with legislation. Independent auditors have licenses and certificates confirming their qualifications.
- Consulting companies: These are firms that specialize in consulting services in the field of tax and accounting. They can provide tax audit preparation services, as well as conduct risk assessments and develop recommendations for optimizing tax processes.
Independent audit firms with experience and knowledge in this field are often engaged to ensure a complete and objective audit.
How a tax audit is conducted by an independent specialist?
A tax audit conducted by an independent specialist or audit firm goes through several key stages. Here is a detailed description of the process:
- Preparation for the audit. Gathering information: The auditor requests the necessary documents from the company, such as financial statements, tax returns, accounting books, contracts, invoices, as well as other documents related to tax obligations. Acquaintance with the company: The auditor studies the specifics of the company's activities, its structure, internal processes and control systems.
- Audit planning. Risk assessment: Identify potential risk areas where errors or violations may occur. Development of the audit plan: A detailed work plan is drawn up, which includes inspection methods, scope of work, terms and distribution of tasks among members of the audit team.
- Performing an audit. Verification of documents: The auditor conducts a detailed analysis of financial and tax documentation, verifies the correctness of the accounting of income and expenses, the compliance of the calculation and payment of taxes with the current legislation. Analysis of internal control: The effectiveness of internal control and risk management systems in the company is evaluated. Interview with the person scrap: The auditor conducts interviews with key employees of the company to obtain additional information and clarifications regarding individual operations or processes.
- Processing of results. Preparation of the report: The auditor prepares a detailed report, which describes the detected violations, deficiencies or inaccuracies, and also provides recommendations for their elimination. Discussion of the results: The auditor holds a meeting with the company's management to discuss the audit results and possible measures to improve tax accounting and control.
- Completion of the audit. Submission of the final report: After discussion and possible amendments, the final report is submitted to the customer. Monitoring the implementation of recommendations: In some cases, auditors may monitor the implementation of the provided recommendations and conduct repeated inspections to assess their effectiveness.
A tax audit conducted by an independent specialist helps the company avoid potential tax risks, ensure compliance with legislation and increase the efficiency of financial management.
What does the cost of the company's tax and financial reporting service cost depend on?
The cost of services for checking the company's tax and financial statements depends on a number of factors. Here are the main ones:
- Company size: Number of employees. Volume of financial transactions. Number of branches or subsidiaries.
- Complexity of business processes: The specifics of the industry in which the company operates. The complexity of the tax system and the number of types of taxes with which the company works. International operations and transactions with non-residents.
- Scope and status of documentation: Number and types of financial documents to be verified. The level of organization and orderliness of documentation. Availability of previous audit reports.
- Purposes of inspection: Internal audit for the company's own needs. Mandatory audit according to the requirements of the law or for obtaining a loan. Auditing to prepare for tax audits or legal proceedings.
- Deadline: Standard delivery time. Urgent review required, which may require additional resources.
- Qualification level of auditor or audit firm: Experience and reputation of the audit firm. Qualification and certification of auditors. Specialization of the firm in certain industries or types of inspections.
- Additional Services: Consultations on tax planning and optimization. Preparation of reports for internal use or for submission to government bodies. Staff training on tax accounting.
These factors affect the amount of work required to conduct an audit and, accordingly, its cost. Before starting the audit, companies usually agree on the terms of cooperation, including the scope of work and the cost of services, in the form of a contract or official offer.
