I want to mention that this procedure is the common way, but my wish is to be known the presented material how is conducted a tax audit in Albania. So, let's begin...
Before beginning an audit, the auditors should inform the head of their audit office that neither they nor their relatives will influence on the impartiality and objectivity of the audit, on their judgment regarding the taxpayer to be audited. This means that continuously auditors should inform their superiors if a potential conflict might arise in the future.
The auditor or audit team charged with the duty to conduct an audit in compliance with the deadline specified in the program is introduced to the company to be audited and present the audit notice and respective program to the company manager. Besides the principal manager of the company, it is required that the head of finance and other relevant staff so considered because of their status in the company take part during the presentation of audit program.
The audit team writes down all the problems and concerns raised by the company managers and their employees during the presentation of the audit program and after they are systemized in the verification process.
Conducting the audit
The issues and methods discussed in this part apply to both complete audits and fiscal visits. The auditors should use their judgment to decide on the level and depth of the tests they have made on the company accounts.
Initial stage of audit
Auditor's introduction to taxpayer: The auditors introduction should be accompanied with the presentation of the Audit Notice registered in. The audit should be conducted in the premises of the taxpayer's activity and the auditor should also visit other premises if the activity is not exercised in one single premise. The auditor should always try together more information than the taxpayer has registered and declared. It is important that the audit is conducted when the appointed person is available.
Initial interview
In the first day of audit, the inspector interviews the representative appointed by the company. Obligatory verifications to be included in this interview will be done according to a certain Table of Procedures that exist in the same way as in other countries.
In the case of a partnership all partners should be interviewed. Of special importance is the interview with the company managers, assuming they are the ones who run the business. The following information should be obtained in these meetings:
• General description of the company
• Duties performed by each member of staff in the company
• Detailed information on the company objectives, especially with regard to profit rates and management and organizational forms the company has chosen in order to achieve its objectives
• Checking the accuracy of certain points regarding the information obtained which does not correspond to the information provided
• Identifying additional information required and the deadline for obtaining such information.
The range of problems to be addressed in the course of the interview are described more in details in the points included in the audit program which the inspector has to execute.
The questions and answers should be written in the auditor's notebook, which will provide the basis for the audit report and enrichment of the audit file. These notes are very important because they may be needed in the court to prove that they were written during the audit and the auditor can and must refer to them or ask to do so.
Verification of internal audits
During The interview the auditor should determine the level and effectiveness of internal audits conducted in the company. In order to be able to assess the effectiveness of the internal audit system in the company the auditor identifies the key elements of the audit environment, accounting systems and internal audits for this system.
Creating an opinion on documentation
In spite of the audit office where they are, the auditors should verify the accounts (bookkeeping) for a preliminary analytical review of the positions they want to verify in more details. The auditor should make an analytical analysis of how the bookkeeping is maintained step by step and alongside with the examination of justifying documentation. Such analysis is made in order to compare what is currently reflected with what should be reflected, based on other data. When the results of the analysis differ from expectations, the auditor can investigate these significant differences.
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Analytical analysis consists of three steps:
Step 1: Determining what is expected to be discovered and to what level will differences be acceptable.
Step 2: Determining the level of registrations/self-declarations
Step 3: Investigating unacceptable differences and potentials for evasion
After determining the differences the auditor call the managers of the audited company to provide the necessary explanations. Failure to provide convincing arguments and justifications for the identified difference constitutes sufficient reason to initiate the definition of the tax assessment.
Evaluation of results
Two possible results can derive from detailed analysis:
1. The test shows that there is a mistake and the auditor should look at the cause, look for another possible mistake and assess the effect of these mistakes on the declared tax obligation. Every invalid payment discovered is on indicator of fraud which requires further actions.
2. The test assesses the full effect of the detected disguise on the declared tax. There are a number of available methods and the most widely used is the method of the norm or the method of average difference. The test conducted and their results should be detailed and stored in the audit file to provide support for every assessment that might follow in a potential appeal in the future.
3. In this respect, the physical inventory is very significant for the test the inspector conducts. It is necessary to attend whenever physical inventories are made in order to make sure that the counting is correct and in compliance with internal audit measures and procedures applied by the company. It is necessary to proceed with tests on the quantities identified by the personnel in charge of counting and storing costs.
Furthermore, it is necessary to:
- compare the observed quantities by tests in inventory files and figures in the bookkeeping;
- make sure of the compatibility of units of measurement and counting that have been used;
With regard to ongoing work it is necessary to:
- compare their composition with the elements resulting from the inventory;
- compare the stages of their progress with the documents which make it possible to follow production.
In order to assess the inventory it is necessary to:
- examine the elements that serve to assess the gross value. In such case it is worth making sure that the assessment adopted to establish the gross value of goods simply implies these elements excluding all other elements like:
- Purchase price without VAT (purchase cost);
- Customs tax;
- Transport cost without VAT, i.e. costs incurred for bringing inventory elements to the existing location and condition;
- Direct costs for the inventory
- if the assessment is based on the real price, it is worth examining invoices from suppliers of the goods in question in order to make sure that the assessment is justified by the price without VAT reflected in such invoices; the same verification should be made for customs rights or transport costs presented to third parties. As regards the transport costs resulting from services supplied by the company and inventory costs, it is necessary to examine documents compiled by analytical bookkeeping, which can help to check whether the costs included in the gross value of these goods are justified;
- If the method of pondered average price has been used for assessment, it is necessary to verify whether the maintained price is not higher than the last purchase price;
- If it is possible to determine the value of every item or category, it is necessary to make sure that they have complied with these values and there has been no global assessment;
- If there have been any modifications in the previously used assessment method, we should make sure that such modifications will not affect the regularity of the balance, and if they do, then we have to specify how it will affect the result;
- Make sure that changes of the condition have been registered as gross value in the account "Changes of raw material condition" or "Changes of condition of goods".
Burden of proof
There are cases when the auditor cannot verify whether the completeness of sums in the accounting registers for the selected accounts. In order to prove that all items have been entered, the auditor should use other sources. It is necessary for the auditor to use his judgment as regards the accounts he wants to analyze until he has reached an acceptable result.
E.g.: (in order to test the comparison between incomes and property of assets from the licensed activity).
a) Does it turn out that according to the data, the economic activity covers the costs to create and increase property of fixed assts or liquidities, both personal or of the economic activity of the family, partners and company manager, or the economic results do not justify the value of this property?
b) Is property of assets in point a) owned by the company or their family members? In such case the investigation should extend further and cooperate with the structures of Investigation and Intelligence Directorate.
When the auditor asks for specific data, it is taxpayer's responsibility to gather the required information and present it to the auditor. The auditor should audit the presented documentation but he should not justify the taxpayer's lack of documentation on incomes and costs. The taxpayer should present the documentation as required by the fiscal and accounting legislation in order to allow the auditor to clearly determine its compatibility with what the taxpayer has filed in his declaration with tax office.
If accounting records and other fiscal documentation are considered legally incompatible by the auditor, it is up to the auditor to decide whether they should be completely or partly used for meeting legislation requirements. In such cases, if the taxpayer does not complete additional documents, the auditor should discuss with the head of office whether to adopt, according to legislation, indirect methods and improvise the real situation of incomes realized by the taxpayer in question.
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