Auditors Responsibilities while doing Tax Audit – An Analysis
Auditors Responsibilities while doing Tax Audit: The tax auditor should obtain from the assessee, the statement of particulars in Form No. 3CD duly authenticated by him. It would be advisable for the assessee to take into consideration the following general principles while preparing the statement of particulars:
Auditors Responsibilities while doing Tax Audit
- (a) He can rely upon the judicial pronouncements while taking any particular view about inclusion or exclusion of any items in the particulars to be furnished under any of the clauses specified in Form No 3CD.
- (b) If there is a conflict of judicial opinion on any particular issue, he may refer to the view which has been followed while giving the particulars under any specified clause.
- (c) The Guidance Notes and SAs issued by the Institute from time to time should be followed. While furnishing the particulars in Form No 3CD, it would be advisable for the tax auditor to consider the following: (a) If a particular item of income/expenditure is covered in more than one of the specified clauses in the statement of particulars, care should be taken to make a suitable cross reference to such items at the appropriate places. (b) If there is any difference in the opinion of the tax auditor and that of the assessee in respect of any information furnished in Form No. 3CD and the annexure thereto, the tax auditor should state both the view points and also the relevant information in order to enable the tax authority to take a decision in the matter. (c) If any particular clause in Form No 3CD and the annexure thereto is not applicable, he should state that the same is not applicable.
- (d) In computing the allowance or disallowance, he should keep in view the law applicable in the relevant year, even though the form of audit report may not have been amended to bring it in conformity with the amended law.
- (e) In case the prescribed particulars are given in part or piecemeal to the tax auditor or relevant form is incomplete and the assessee does not give the information against all or any of the clauses, the auditor should not withhold the entire audit report. In such a case, he can qualify his report on matters in respect of which information is not furnished to him. In the absence of relevant information, the tax auditor would have no option but to state in his report that the relevant information has not been furnished by the assesse.
- (f) The information in Form No. 3CD should be based on the books of accounts, records, documents, information and explanations made available to the tax auditor for his examination.
- (h) If the tax auditor is not able to perform required audit procedures to check accuracy of information furnished in Form No. 3CD due to non-availability of information or required documentation in the possession of the assesse, he should clearly mention the same in the report.
- (i) In case of certain clauses, the tax auditor relies on management representation to support completeness of information furnished in Form No. 3CD. The tax auditor should bring this fact in his audit report.
- (k) In case of changes in applicable laws which may have impact on information furnished in Form No. 3CD such as introduction of GST effective from 1 July 2017, however, necessary changes in Form 3CD have not been made to incorporate all regulatory changes, the tax auditor may consider appropriate disclosure in his report.
- (l) If there are disputes with the tax authorities related to particular information furnished in Form No. 3CD of earlier years which may impact opening balances disclosed in the current year Form No. 3CD, the tax auditor should bring this fact in his report.
- (m) The Tax Auditor should also ensure the eligibility of the expenditure/payment for deduction and compliance of the conditions prescribed in the sub-section including approval from the relevant/prescribed authority, notification issued by the Central Government. Tax auditor should also refer Rule 6 of Income-tax Rules, 1962.
While test checks may suffice in the conduct of a statutory audit for the expression of the auditor’s opinion as to whether the accounts depict a ‘true and fair’ view, the tax auditor may be required to apply reasonable tests on the total information to be prepared by the assessee in respect of certain items in the prescribed form, e.g., in verification of payments for purchases/expenses exceeding Rs 10,000/- in cash. While the entity may have to prepare the details for the entire year, the tax auditor may have to ensure that no items have been omitted in the information furnished and a reasonable test check would reveal whether or not the information furnished is correct. The extent of check undertaken would have to be indicated by the tax auditor in his working papers and audit notes. The tax auditor would be well advised to so design his tax audit programme as would reveal the extent of checking and to ensure adequate documentation in support of the information being certified.
While test checks may suffice in the conduct of a statutory audit for the expression of the auditor’s opinion as to whether the accounts depict a ‘true and fair’ view, the tax auditor may be required to apply reasonable tests on the total information to be prepared by the assessee in respect of certain items in the prescribed form, e.g., in verification of payments for purchases/expenses exceeding Rs 10,000/- in cash.
The audit report given under section 44AB is to assist the income-tax department to assess the correct income of the assessee. The Assessing Officer or any other authority who is authorised to call for evidence or documents, can call upon the tax auditor who has audited the accounts to give any evidence or produce documents.
The liability of the tax auditor in respect of tax audit will be the same as in any other audit assignment. In case the assessee is found guilty of having concealed the particulars of his income it would not ipso facto mean that the tax auditor is also responsible.
In order that the tax auditor may be in a position to explain any question which may arise later on, it is necessary that he should keep detailed notes about the evidence on which he has relied upon while conducting the audit and also maintain all his working papers. For this purpose attention is also invited to SA 230 – Audit Documentation, which provides that the tax auditor should document matters which are important in providing evidence that the audit was carried out in accordance with the basic principles. Such working papers should include his notes on the following, amongst other matters:
- (a) work done while conducting the audit and by whom;
- (b) explanations and information given to him during the course of the audit and by whom;
- (c) decision on the various points taken;
- (d) the judicial pronouncements relied upon by him while making the audit report; and
- e) certificates issued by the client/management letters.
The liability of the tax auditor in respect of tax audit will be the same as in any other audit assignment. In case the assessee is found guilty of having concealed the particulars of his income it would not ipso facto mean that the tax auditor is also responsible. However, tax auditor should ensure factual accuracy of information provided by assessee in Form No. 3CD, performance of required audit procedures to check the same and appropriate documentation in support of his audit report.
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