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Auditing is a professional activity which must be carried out using in-depth academic knowledge and using a series of specialised techniques. This leads to the provision of a service with the highest level of quality and assuming due social responsibility; not only with the client but also with the general public, who has to make use of the auditor’s opinion to make their own decisions.
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, thanks to this, 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.
Why is a tax audit necessary?
The verification and analysis of the tax situation of a company through a tax audit, which allows to determine the level of financial risk that the company assumes in its activity, becomes an action not only necessary, but essential – to avoid the risk of contingencies and maximise the savings of companies.
Every company and every entrepreneur needs to know 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.
What does tax auditing consist of?
One of the main functions of the audit is to issue independent and qualified reports on administrative reports, based on an analysis of the objective information underlying the data provided and studied.
The function of the Audit is represented 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 very important for companies when analysing their economic and financial situation, so it is essential that they contact auditing professionals like Norden’s, who periodically perform these audits internally. It is a very broad analysis process, which takes into account several factors that will help the company to know if it is up to date with its economic-financial operations.
The tax audit consists of carrying out a study of the financial status of a company, whereby several points are analysed to know the business’s situation, such as:
• Balance, which is a ‘photograph’ that shows the real situation of the company at a certain moment in time. This is why it is one of the accounting records that are analysed in the tax audit.
• The income statement, which is also essential to know the monetary situation of the company.
How is it carried out?
Depending on the type of company, the auditor has a series of audit techniques that are mentioned below:
Action through which the auditor studies and warns, appreciatively the events or circumstances in which they are developed and in the various functions or management of the company audited.
Investigation carried out by the auditor on certain points based on questions he asks of the audited company.
This technique allows opinion to be formed regarding the company, fact or specific issue. However, the conclusions or judgments necessarily require verification or evidence that sufficiently supports it, which will be achieved through the application of other techniques as the case may be.
This is the action aimed at ensuring the occurrence or not of an event or issue, by obtaining a statement from third parties outside the company, who know the nature of the circumstance that allows the auditor to form a true and stable trial.
This is the critical study of certain facts that allow us to reach the conclusion that the information subject to this technique is inside or outside the norm. It consists in separating elements and grouping them according to their nature or origin in such a way, that from the examination carried out by the auditor is formed about the balance or movement of a register or account.
How to survive your first tax audit?
Banish any temptation to modify, delete or hide the information collected by the company’s activity. It is clear that at some point all accounting requires some final adjustment 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 as much as possible all the documentation and have it available to show.
Set a timetable. 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 is a situation of unnecessary tension. Much better is to mark in advance the moment in which the auditor can transfer their doubts and comments to the managers of the company and also to the administrative staff that has 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 on the surface. 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 without overwhelming them. The auditors will disembark at the company to review invoices, processes, etc. You have to tell them where they need what they need, but without trying to direct the search because that can be interpreted as a way of restricting their work.
Can I carry out an internal tax audit of my company?
An internal tax audit can be carried out both by the company’s own workers and by external professionals, such as Norden’s who are hired to carry it out. The main tasks performed in an internal tax audit are:
• Analysis of tax legislation that affects the company
• Study of the tax legislation established in all taxes that affect the entity
• Implementation of systems that guarantee the correct calculation of the different taxes, since the filling in of errors of the tax models can lead to important contingencies
• Determination of procedures for the preparation, presentation and settlement of tax returns, clearly identifying the people responsible for each process
• Identification of the tax advantages that result from application to the company based on the activity developed
• Realisation of financial planning for future exercises
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In November 2002, having sold our other business interests off earlier in the year, I decided to set up Nordens Chartered Accountants. The easy part was knowing how to do it, as I had established and built a smaller practice a few years earlier, the difficult part was not following the traditional accountancy path. Having run businesses, both successfully and unsuccessfully, I wanted to help business owners resolve their short term problems and work with them to achieve their longer term goals. Business has always been my interest and I love that I can help business owners achieve what seems like the impossible every single working day.
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