Tax audit is a kind of initiative audit, which is one of the most popular and relevant of current interest audit services. Importance of tax audit for companies lays in the prevention of significant probability of losses, risk of occurrence of which is high in cases of reveal of tax legislation violations during inspections by controlling authorities.
Corporate tax system audit is an independent verification of the accounting system (as a basis for tax accounting) and an complex or segment tax accounting system inspection.
The main purpose of tax audit is to identify errors made in the process of taxation of company’s activity, as well as to develop and implement measures on elimination of such deficiencies.
The purpose of the tax audit is determined by the circumstances of its conduction. So tax audit is conducted in the following cases:
prior to the inspections by controlling authorities
when change of officers or materially responsible persons
when controlling the work of company’s accounting department
when assessing tax risks
when change of company’s activity model
when carrying out activities to optimize tax payments
upon detection of errors in provided tax reporting
when submitting clarifying calculation of tax liabilities, etc.
Subject of the tax audit is the following:
compliance of tax accounting system with requirements of the legislation
timeliness and accuracy of the registration of a taxpayer
correctness of the tax base
legitimacy of applying tax rates and exemptions
correctness and fullness of accrual of tax liabilities
correctness of tax reporting
fullness and timeliness of payments and taxes to budget and relevant funds
correctness of use of special taxation regimes, etc.
Separate subject during tax audit conduction may be issues not related to verification of calculation and payment of taxes, but is a subject of review by tax authorities. These issues include:
- correctness of foreign economic activity performance
- correctness of cash transactions
- inspection of activities subject to licensing and patenting
- correctness of application of legislation on labor protection, social guarantees, etc.
Tax audit is conducted according to agreed procedures and the report on actual results thereof is prepared. The users independently assess procedures and results presented in the report and make their own conclusions.
Timely tax audit allows to avoid significant financial losses and potential conflicts or misunderstandings with controlling authorities.