Auditing is a professional activity which must be carried out using in-depth academic knowledge and using a series of specialised techniques. A tax audit will essentially investigate if a taxpayer – be it individual or corporate – is up-to-date with its tax obligations. This is very important since we can often make contracts with third parties or borrow from a bank. If we are not up-to-date with our tax obligations, we may be denied some financial operations, such as the granting of a loan. It is crucial to differentiate it from an accounting audit since the tax audit will also analyse if the company is up-to-date in its tax presentation and payment obligations.
One of the main functions of the audit is to issue independent and qualified reports based on an analysis of the objective information underlying the data provided and studied. The function of the audit is pinned down by three basic concepts: experience in the field of accounting; dexterity in the handling of data and information collection methods; responsibility for a professional opinion before third parties. As you can see, the tax audit is significant for companies when analysing their economic and financial situation. At Nordens we sift data with a fine tooth comb. We’ve always believed that it’s essential to practise with unmatched accuracy and our years of pooled, expert experience helps us do just that!
It is a very broad analytical process, which takes into account several factors that will help the company to know if it is up-to-date with its economic and financial operations. The tax audit consists of assessing the financial status of a company, whereby several points are analysed to know the business’s situation. These points include: balance sheets which are considered as ‘photographs’ of the business for it shows the real situation of the company at a certain moment in time; the income statement – this is also essential to determine the monetary situation of the company.
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Tax auditing is a necessary – yet confusing – component of running a business. So, to help you understand the process more thoroughly, we have brought together and solved the most popular queries:
The verification and analysis of the tax situation of a company through a tax audit (which allows you to determine the level of financial risk that your company assumes in its activity) becomes an action not only necessary, but essential in order to avoid the risk of contingencies, and maximise the savings of companies. Every company and every entrepreneur needs to be aware of and control the risks it assumes in the development of its economic activity. As a result, more and more companies have extended the risk analysis of non-compliance towards all areas, especially tax. They must have the function of detecting and managing the risks of breaches to internal and external regulatory obligations, mitigating the risks of sanctions and the losses arising from such breaches.
Depending on the type of company, the auditor has a series of audit techniques that are mentioned below:
The process through which the auditor studies and warns the business. The auditor considers the events or circumstances in which they are developed, and the various functions or management of the company audited.
This is an investigation carried out by the auditor based on questions he asks of the audited company.
This technique allows a judgement to be formed regarding the company. However, the conclusions or judgements require verification or evidence, which will be achieved through the application of other techniques.
This is aimed at ensuring the occurrence of certain events or issues by obtaining a statement from third parties outside the company. These third parties who know the nature of the circumstance allows the auditor to form a true and stable trial.
This is the critical study of certain facts that allow us to assess whether the information subject to this technique is inside or outside of the norm. It consists of separating elements, and grouping them according to their nature or origin. Thus, from this examination, a judgement can be formed about the balance or movement of a register or account.
Banish any temptation to modify, delete, or hide the information collected regarding the company’s activity. It is clear that at some point all accounting requires some final adjustments to square them accurately.
Get organised: if there is margin – and usually there is – between the time when it is known that the company is going to be subjected to an audit, and the moment it occurs, it must be used to organise the documentation and have it available to show.
Set up a timetable as the organisation of appointments with auditors is a very useful method to reduce the stress of this process. Being available to the auditor for eight hours of work can be a situation of unnecessary tension. It is much better to know in advance the moment in which the auditor can transfer their doubts and comments to the managers of the company, and to the administrative staff that have to collaborate with them.
Stay calm: when the audit is not voluntary, the tension of the person who sees their work under scrutiny is often very apparent. Still, it is advisable to remain calm. This serves both to answer the questions that the auditor may raise, and to avoid recriminating scrutiny that we may consider excessive.
Collaborate with the auditor, but do not overwhelm them. The auditors will need to review invoices, processes etc. You have to tell them what they need and make these things available, but without trying to direct the search. This can be interpreted as restricting their work.
An internal tax audit can be carried out both by the company’s own workers, and by external professionals, such as Nordens. The main tasks performed in an internal tax audit include:
• The analysis of tax legislation that affects the company
• The study of the tax legislation that affects the entity
• The implementation of systems that guarantee the correct calculation of the different taxes. The filling in of errors of the tax models can lead to important contingencies
• The determination of procedures for the preparation, presentation, and settlement of tax returns, which clearly identify the people responsible for each process
• The identification of tax advantages
• The realisation of financial planning for future exercises
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