The Audit Section of the Inland Revenue Division consists of twenty-four members of staff and “is the nerve center” of the Division. It comprises of two units namely: the Large Medium Taxpayer Audit Unit (LMTAU) located on the second floor of the Financial Centre and the Small Taxpayer Audit Unit (STAU) which is housed at the Division’s main office on High Street.
LMTAU is responsible for auditing the large and medium-sized companies and a number of business enterprises, while the small unit is responsible for auditing small companies as well as individuals with employment income and persons with limited activity/ small businesses.
The primary function of the Audit Section is to ensure that returns submitted to the Comptroller was done in accordance with the tax laws as well as General Accepted Accounting Principles (GAAP), International Financial Reporting (IFR), and International Accounting Standards (IFAS). If the principles and standards deviate from the tax laws, then the tax laws takes precedence.
Returns submitted by taxpayers are processed based on the self-assessment system. After processing, returns for audit are selected using a risk portal with pre-established criteria. Auditing of these returns comprise of the relevant and reasonable tests of the accounting transactions to determine whether the taxpayer complied with the taxation laws and policies of the Inland Revenue Division.
Types of Audit
Presently, the following four types of audits are conducted by staff of the Division:
• Limited Scope - limited to a particular tax type or issue.
Comprehensive (full scope) audits or combined scope audit is a combination of Personal Income Tax, Corporate Income Tax, VAT and any other taxes applicable to the taxpayer. In other words; comprehensive audits are normally conducted for multiple tax types and for several tax periods and will include site visits and extensive interaction with the client or his representative.
Desk audits involve the verification of information furnished to the Division; these may include the verification of refunds or any other allowable deductions. Additional information may be requested.
Limited audits are performed where only a limited or restricted area of the information submitted needs verification or may pertain to only one tax type. During the audit there will be site visits and interaction with the client or his representative
The Audit Process
Before an audit is completed, the designated Audit Officer is required to follow the steps outlined below:
1. Analyzing data in file
2. Contacting taxpayers (initial interview)
3. Reviewing of records
4. Preparing proposed assessments
5. Contacting taxpayer (final interview to present findings and a proposed assessment)
6. Amending & issuing revised assessments
Step 1. Analyzing data in file
The auditors review screener’s comments and perform various analytical procedures.
Step 2. Contacting taxpayers
The taxpayer’s file and other relevant documents are reviewed; the auditor initiates contact with the taxpayer with a courtesy letter, informing him of the pending audit.
A second letter is issued by the auditor indicating that he would like to:-
• Have a meeting with the taxpayer (initial interview); and/or
• Visit the taxpayer premises or business place; and/or
• Request documents to substantiate income and expenses
Step 3. Reviewing of records
The auditors must act in judicial capacity, when reviewing the information or evidence requested.
That is, he must ensure that;
• Income/Revenue from all taxable sources are declared;
• Amounts deducted is in accordance with the provisions of the Income Tax Act, VAT Act and Regulations
Step 4. Preparing proposed assessments
Proposed assessments are prepared with supporting working papers. These documents provide details of the auditors’ findings and adjustments made.
Step 5. Contacting taxpayer (final interview)
A final interview is then conducted with taxpayer, where he is presented with the proposed assessments along with the supporting explanation of adjustments. In addition, the taxpayer is briefed on what was done, and his current tax status in regard to the audit.
He is also informed of his right to respond within two weeks to the proposed assessment. At this stage he may furnish further documentary information and, the auditor will review the evidence and then make a determination based on the provisions of the law.
Step 6. Amending & issuing revised assessments
In response to the taxpayer’s queries/concerns the the proposed assessments may be modified and a final assessment is issued.
Where no response was received, it is assumed that the taxpayer is in agreement with the proposed assessment, and the assessment will be finalized.
A formal letter will then be forwarded to the taxpayer, informing him of the outcome of the audit. Attached to this letter will be the revised assessment and documents to show the computation of assessable income; the result could be a nil, refund or payable assessment.
In that letter, the taxpayer is informed that if he is aggrieved by the result of the audit, he may object in writing within thirty calendar days, indicating why he is not in agreement with the assessment.