Despite the fact that recently we observe an increasing convergence of financial (accounting) and tax accounting, as well as their apparent similarity; there are still a lot of factors that make us note that they actually represent two separate types of accounting.
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From year to year fines for the breach of tax laws become heaviest, tax legislation changes regularly, and sometimes it is difficult to follow all the changes, so the value of tax audit is increasing each.
The tax audit is inherently the same as the financial audit, except that the tax reporting is the object of tax audit. In this case, the task of the consultant-auditor is to check and confirm the correctness of the preparation of tax reports, and in case of any violations to provide clear and understandable recommendations how to correct identified deviations in the shortest possible time and what should be done to prevent such deviations in the future . The subject of the audit can be reporting on all taxes or on a specific tax. Specified by the client.
The audit is carried out for the reporting period, which the client requests to be audited. Usually this is the period of the company’s activity for the last three years, because, as a general rule, after the expiration of this period, the tax auditors have no right to verify the accuracy of determining the taxpayer’s tax obligations. However, in some cases, the tax authorities still have the right to analyze certain documents and tax reports and for earlier periods – up to seven years from the date of compilation of primary documents or the relevant tax reporting. Therefore, most often the audit period is from one month to three – five years.
It is obviously that tax reporting is likely to be deeply analyzed in the future (unfortunately, it is often biased) by controlling authorities. Therefore, the auditor should know very well the specific tax legislation, and to understand the point of view of tax inspection concerning any disputable (ambiguous) questions. In some cases, tax reporting should be rather compiled focusing more on point of view of the relevant tax authorities than on existing rules and regulations in legislation. Otherwise, even if the company is confident of its reporting correctness, but the opinion of the management of the company differs from the point of view of the tax service on certain issues, there is a high possibility that the enterprise will have to defend its point of view in the court. Thus, we consider it is extremely important and necessary for the tax audit to provide the client with a complete picture of all the existing alternatives to the preparation of tax reporting, as well as the potential tax consequences of one or another option.
Also during the audit, we conduct a full calculation of the potential tax risks for the company – possible financial losses that may occur as a result of violation of tax laws. We recommend to conduct the audit for large and medium-sized companies at least once a year and preferably every six months or quarterly in order to minimize the risks of underpayment (in some cases, overpayment) of taxes. In practice it is always better and easier to make the necessary “preventive measures” than to correct the already committed violations (especially if they are not one-off, but lasting for a certain period of time).
There are two fundamentally different ways of conducting a tax audit:
– before the submission of tax reporting;
– after the submission of tax reporting.
Of course, it is more effective to conduct of a tax audit before submitting the tax reporting to the relevant supervisory authorities, since in this case the company has the opportunity to take into account all the revealed deviations directly in such reporting for the relevant tax period (i.e., without subsequent tax return updates, often resulting penalties).
An additional bonus to the tax audit service from our company is the provision of recommendations for correcting mistakes, assistance in defending the position of the enterprise on disputable issues during and after the audit by tax authorities. And the most importantly point at that in our company there is a practice of financial responsibility for conducting a tax audit if the tax inspection finds undetected deviations, we are ready to compensate the company’s losses in the form of penalties.