1. Introduction 1.1 The concept of audit by a Chartered Accountant in the area of Indirect Taxes was confined ...
1.
Introduction
1.1 The concept of audit by a
Chartered Accountant in the area of Indirect Taxes was confined to State Value
Added Tax and Central Sales Tax laws of certain States. In Central Excise and
Service tax only in case of suspicion of undervaluation or excessive credit
special audits were prescribed (not much used) which continue in GST.
Therefore, Chartered Accountants engaged in rendering professional services in
the areas of State taxes would be familiar with those provisions. The GST law
has subsumed several Indirect Tax laws – among others, it subsumed Central
Excise, Service Tax, Luxury Tax, Entertainment Tax, VAT/CST, Entry tax laws
etc.; certain levies under the Customs laws have also been subsumed into the
GST laws.
1.2 It would be relevant to
note that the skill sets acquired in the understanding of the statutes that
have been subsumed into the GST laws would help in better understanding of the
GST laws since several provisions of the Central and State enactments have been
replicated (fully or partially) in the GST laws – say, for instance, the
provisions of Place of Supply of Services, Time of Supply of Services,
Valuation of Supply Rules, etc. That being said, one needs to exercise caution
in reading and understanding the subtle departures or changes in the statute in
comparison with the erstwhile legislations, in which case, one has to enhance
the understanding of the fully taken forward provisions. He also needs to
unlearn the old laws and learn the GST laws afresh for a complete understanding
of the taxing statute.
1.3
In terms of Section 2(13) of the CGST Act, 2017, “audit” means the examination of
records, returns and other documents maintained or furnished by the registered
person under this Act or the rules made thereunder or under any other law for
the time being in force to verify the correctness of turnover declared, taxes
paid, refund claimed and input tax credit availed, and to assess his compliance
with the provisions of this Act or the rules made thereunder.
1.4 The following three types of audits are
envisaged under the GST laws:
·
The first type of audit is to be done by a chartered accountant or a
cost accountant;
March 2018 1 | P a g e
·
Second type of audit is to be done by the commissioner or any officer authorised
by him in terms of Section 65 and 66 of the CGST Act, 2017 read with Section 20
of the IGST Act, 2017 and Section 2 of UTGST Act, 2017.
·
The third type of audit is called the Special Audit and is to be
conducted under the mandate of Section 66 of CGST Act, 2017 read with Rule 102
of
CGST Rules, 2017.
This write-up has not taken
into consideration an audit in terms of Section 65
/ 66 of the
CGST Act, 2017.
1.5 While the GST regime
emphasizes self-assessment processes, the complexities involved in the new
statute make one wary. At this juncture, it is clear to tax professionals that
the GST law is not presently simple enough for an assessee to compute his total
and taxable turnovers and duly report the same, under the new statute.
1.6 The new statute lays
substantive emphasis on e-governance. It is presumed that over a period of
time, the complexities of the GSTN and the GST law would be subject to several
changes / amendments to enhance ease of compliance and transparency. Several
errors occurring in the GSTN while attempting to furnish the details are
brought to the attention of the registered persons almost immediately, owing to
the use of extensive technology. Examples:
-
Transitional credit claims being processed with error in case of mismatch in GSTIN;
-
Discrepancy with the amount of credit / cash being utilized to off-set the
liability;
-
Duplication in invoices.
1.7 Nevertheless, errors that
cannot be traced by the system are bound to have been committed by registered
persons while filing the returns. It is also a fact, that GST law is in the
process of being properly interpreted and understood by each of us. The
difficulty also arises on account of the fact that there are no precedents on
each such issue. One has to overcome these intricate issues by properly
understanding the nuances of the law which is still evolving.
1.8 The Revenue, with the aid
of information technology, is expected to identify patterns / spike in
liability, credits, reconciliations through online tools / resolutions and
intelligent reporting.
1.9 The level of tax
compliances prevailing and the complex nature of tax laws in our country makes
it necessary for audit of records under various laws. Therefore, in order to
ensure tax compliance by the assessee, the GST law provides for audit by the
tax department and by professionals in certain cases.
1.10 Ordinarily, the smaller
assessees do not prefer to get their books of account and records audited for
indirect tax compliances, when there is no mandatory requirement to do so.
However, larger entities who wish to avoid any disputes opt for caution checks.
Audit is perceived as a cost rather than as a tool in identifying errors or to
optimize the tax incidence though it can actually be a value adder, directly
and indirectly.
1.11 In the past, certain
tax-compliant assessees have been known to voluntarily engage experts to
conduct audits under the Excise or Service tax laws. The exercise was
undertaken to evaluate compliance, as also to ensure that all benefits lawfully
accruing to the assessees are availed by them, in good time. The financial
impact on account of indirect taxes is always substantial, and therefore, those
assessees who engage tax professionals for a review from the indirect tax
perspective would have witnessed a great deal of value addition.
Audit Exercise-Advantages
1.12 To an assessee – Normally, the tax department conducts an audit or assessment after the close of a financial year. It is customary to
expect that the departmental audit / assessment is conducted after the close of
the financial year except in cases where investigations, inspections or special
audits are taken up. Naturally, any levy of additional taxes either due to
non-compliance or incorrect comprehension of the complex tax laws would result
in taxes plus consequential interest and penalty. GST being a tax on supplies,
would tend to wipe out the top line in such cases.
1.13 Given the time lag between
the date of committing an error and the date of ascertaining / rectifying such
error, the consequence in such situations can be quite alarming in as much as
the very liquidity of an entity can be under jeopardy. This
would be the scenario, even where there is no mala fide intent on the part of the assessee to evade or avoid
taxes that are legally due to the Government. Consequences that can arise in
respect of issues that arise on account of classification or interpretation or
judicial pronouncements can be disastrous.
1.14 It is a basic fact, that no
assessee would be in a position to collect such additional tax levies from
customers long after the transaction stands closed. On the other hand, there
may also be cases where eligible credit may not have been availed, and it
cannot be claimed at a later date since it is either time barred or claims have
not been preferred through the returns.
1.15 Therefore, where a review
is undertaken periodically, the discrepancies will be noticed at the time of
omission / commission and corrective measures can be taken in a timely manner.
Thus, it would lead to maximization of credit availment and minimization of tax
/ other outgoes owing to proper planning and timely compliances.
1.16 To the department / Government – The tax department / Government would also stand to benefit from a periodic
review by way of receipt of information that are duly classified, correct
determination of total and taxable turnovers, review of rates of taxes, proper
application of relevant notifications, circulars, clarifications, Government
orders and adherence to the tax compliances. The audit report would also take
into cognizance the relevant judicial precedents that are applicable to the
registered person. Unlawful claims for benefits / unethical tax management
practices adopted by the assessees would be filtered out, since tax
professionals would intimate and persuade the assessees of the consequences of
such practices, and also bring out the discrepancies in their reports. When
audits are performed by tax experts, the time spent by the tax authorities on the
scrutiny would be minimized, thereby allowing them to utilize the available
time for more meaningful and productive purposes. Voluntary compliances by the
assessee would encourage the department / Government to simplify the law and
procedures, and develop a mechanism for ease of doing business. It would be a
win-win situation.
1.17 To the professionals – Tax Professionals are compelled to conclude the
audits (mandated by statutes) in a
time bound manner within a fixed period of time.
However, where
auditees engage them to carry out periodic reviews voluntarily, the said tax
professionals will be in a position to deploy experts and spend adequate time
and efforts, in order to go through the records and documents in detail. This
will help them to better understand the operations of the auditee, resulting in
value addition. Instead of carrying out the audit at the end of the year, for
all the assessees, a periodic audit will help the auditee in understanding the
short-comings that can be duly adhered to within time and would, in a way,
avoid any further consequences.
2.1 The GST Audit would be
undertaken for the first time, and therefore, demands significant preparation
from both the auditor and the auditee. While the statutory audit (under the
Companies Act, 2013) and tax audit (under the Income Tax Act, 1961) primarily
rely on the financial records, the GST audit would require coverage of a larger
cluster of records. The GST audit requires deep understanding of the GST laws,
IT infrastructure of the auditee, the method in which the GST portal operates,
applicability of the various notifications, circulars, clarifications,
classification of goods and / or services, the nature of supplies, the manner
of availment of credits together with its allowability or otherwise,
maintenance of various records and documents specified therein, requirements of
reporting and source of information, understanding of the business of the
auditee etc. Apart from these issues, it is imperative that an auditor
understands the basic functioning of the e-governance model. The audit coverage
of all these records and documents would need substantial amount of preparation
and time.
2.2 To start with, the
following (among others) are the various steps an auditor can take in
connection with the forthcoming GST audit:
a. Inform the concerned assessee about the
applicability of GST audit;
b. Confirm the eligibility to
be the GST auditor under the related legislation and the guidelines issued by
ICAI;
c. Understand the nature of
business, the products or services, requirements of records to be maintained,
and advise the auditee to maintain the accounts and records so required,
beforehand;
d. Prepare a questionnaire to
understand the operations / activities of the auditee, and specifically develop
questions on those issues on which the GST law would have a bearing;
e. Preparation of the detailed
audit program and list of records to be verified;
f. Host of relevant
reconciliations.
3.
Audit under GST laws –
Relevant Statutory Provisions
3.1 It is important to
understand the relevant audit provisions under the GST laws
– such as, whose accounts
are to be audited, who can undertake a GST audit, what are the regulations of
ICAI applicable to the GST auditor, the procedure for appointment, scope and
preparations required, etc.
3.2 Class of registered persons liable for GST Audit: Every registered person whose aggregate turnover during a financial year exceeds the prescribed
limit of Rs.2 Crore is liable to get his accounts audited by a Chartered
Accountant or a cost accountant. The phrase ‘aggregate turnover’, as defined in
Section 2(6) would mean the all-India PAN-based turnover for the financial year
(inclusive of exports, inter-State supplies, exempt supplies, stock transfers,
etc. but exclusive of GST and compensation cess).
Note: The appointed date for effective
implementation of the provisions of the GST
laws is 01.07.2017, i.e., from the second quarter of the financial year
2017-18. Therefore, the very applicability of the threshold limits for audit
purposes, whether wholly (Rs.2 Crore) or in proportion, has not been explicitly
provided for – Clarification from the Government is awaited.
3.3 Filings upon GST Audit: The registered person shall submit a copy of the audited annual accounts, the
reconciliation statement (reconciling the value of supplies declared in the
return furnished for the financial year with the audited annual financial
statement), in FORM GSTR-9C and other documents as may be prescribed, on the
GST Common Portal.
3.4 The detailed Rules /
guidelines regarding the audit procedures and the Audit Report format etc. are
yet to be prescribed / notified. In the absence of these,
one may only prepare the
audit manual / audit program, and cannot finalize scope of the audit in
totality. Given that the law is evolving and further changes could be expected
(over 300 Notifications + several FAQs,
Orders, Circulars, clarifications,
flyers, press releases & tweets), making difficult for Businessmen to
comply, they would be well-advised to take a lead and commence with periodic
reviews to ensure compliance and speed up the first-time audit process.
4.
Assessees whose accounts
are to be audited
4.1 The threshold turnover limit
of Rs. 2 crore, as referred to in Para 3.2 supra:
·
Is the same for assessees in all the States and UTs. No separate
threshold limit is specified for Special Category States. Since each of the
State GST Acts also contain the relevant provisions relating to audit, the GST
audit shall be State-wise;
·
Is to determine the applicability alone, and separate audits would have
to be carried out for each of the distinct registrations under the same PAN.
4.2 It would be the duty of a
Chartered Accountant / auditor to inform the auditee about the requirement of
GST audit, mandatory documents and other preparations required from the
auditee.
5.
Audit by a Chartered Accountant or a Cost
Accountant.
5.1 The
Chartered Accountants Act, 1949
Ø
Section 2(1)(b) – a “chartered accountant” means a person who is a
member of the Institute.
Ø
Section 2(2) – a member shall be deemed to be in practice if he engages
himself, for a consideration, in the specified activities, which includes inter
alia audit.
Ø
Section 6 provides that a member cannot practice without obtaining
Certificate of Practice
Thus, only a member of ICAI
having a Certificate of Practice (COP), or a firm of Chartered Accountants can
take up the GST Audit. Additionally, a Chartered Accountant must bear in mind
the following:
·
Member in part time practice (including an employee having a COP) is not
entitled to perform attest function. (242nd Council
Meeting Resolution);
·
Member having substantial interest in an assessee cannot take up its
audit. (Clause 4 of Part I of the Second
Schedule of the Chartered Accountants Act, 1949 (“the CA Act”) read with Appendix 9 of CA Regulations 1988);
·
Member responsible for writing / maintenance of books of account of an
assessee should not take up its audit (Clause
(4) of Part I of the Second Schedule to
the CA Act);
·
Member not to accept the audit of a person to whom he is indebted for
more than Rs. 10,000/- (Chapter X of ICAI
Guidelines);
·
Member not to charge professional fees based on a percentage of profit or
which are contingent upon the finding or the result of the professional
employment. (Clause 10 of part I of the
First Schedule to the CA Act);
·
Internal auditor of an assessee cannot be appointed as his tax auditor (281st Council Meeting Resolution).
·
In case of joint audits, all the auditors will have to sign the audit
report and should issue separate reports where they have different opinions. (Ref SA 299).
5.2 The restrictions applicable
for appointment of a statutory auditor where fee for other services are more
than the statutory audit fee, in case of specified entities, are not applicable
GST auditors (Chapter IX of ICAI
Guidelines).
5.3 An assessee may have GST
registrations in more than one State. In such cases, the assessee may appoint a
single / multiple auditor(s) for the distinct registrations under the same PAN.
It is possible that accounts and records that are kept in different States may
be in the local language of that State. In such cases, it is suggested that the
auditor should not accept the audit of accounts written in a language which he
/ his staff do not understand.
6.
Audit Engagement
6.1 In case of a company, the
appointment of the GST auditor should be made through a resolution of the Board
of Directors or by an officer of the company, if so authorized by the Board in
this behalf. In case of a partnership firm or proprietary concern, the
appointment can be made by a partner or the proprietor or a person authorized
by the assessee. The acceptance of appointment should also be communicated in writing
to the auditee.
6.2 Communication with the previous Auditor – Since the GST audit is applicable
for the first time (for the financial year 2017-18), the requirement of
communication with the previous auditor prior to accepting the engagement
(based on the provisions of the CA Act) does not arise. However, as a healthy practice, the
GST auditor may choose to communicate with the previous auditor (under the
erstwhile provisions of State Level Laws) so as to get a better insight into
the auditee’s business practices. Such communication would, however, become
mandatory in the subsequent years (where the retiring auditor is a Chartered
Accountant).
7.
Submission of Audit Report
7.1 Section 35(5) read with
Section 44(2) of the CGST Act provides that the following documents shall be
furnished electronically by the assessee upon conclusion of the audit:
a. Annual Return;
b. Copy of the audited annual
accounts;
c. Reconciliation statement,
reconciling the value of supplies declared in the return furnished for the
financial year with the audited annual financial statement in FORM GSTR 9C
(this FORM is expected to undergo some simplification), duly certified;
d. Such other particulars, as may be prescribed.
7.2 A format for the audit
report / certificate is yet to be notified. It is not clear as to whether it
will be in the nature of an audit report
like the statutory audit report or tax audit report, or a certificate like in case of VAT audits. If it is in the nature of a
certificate, the responsibility of the GST auditor would be substantially
higher.
7.3 Certificate Vs. Report –
Para 2.2 of the ‘Guidance Note on Audit Report and certificates for Special
Purpose’ issued by the ICAI notes the difference between the term ‘certificate’
and ‘report’ as under;
·
“A Certificate is a written confirmation of the accuracy of facts
stated there in and does not involve any estimate or the opinion.”;
·
“A Report, on the other hand, is a formal statement usually made
after an enquiry, examination or review of specified matters under report and
includes the reporting auditor’s opinion thereon”.
7.4 Thus, where a certificate
is issued, the Chartered Accountant shall be responsible for factual accuracy
of what is stated therein. In case of a report, he is responsible for ensuring
that the report is based on the factual data, true and fair (or in some cases
true and correct) to the best of his belief, knowledge and information
furnished to him.
7.5 Annual Return: Every registered person [other
than an input service distributor (ISD), person required to deduct tax at
source (TDS), person required to collect tax at source (TCS), casual taxable
person (CTP) and non-resident taxable person] shall furnish an annual return for every financial year
electronically in the FORM GSTR-9 (composition
suppliers in GSTR-9A and e-commerce operators in
FORM GSTR-9B) on or before 31st December following the end
of the financial year. Where a
registered person is required to get his accounts audited, such
annual return
shall be furnished along with the audited accounts.
7.6 On a plain reading of the
relevant the provisions, it appears that the annual return is not merely the
sum total of the periodic returns filed for the year, but a return reflecting
the correct turnovers, data and details as per the provisions of the GST laws,
based on the annual accounts of the assessee. Where it is required to be
audited, the turnovers appearing in the annual return shall be as per the
audited figures.
7.7 Reconciliation statement – Rule
80(3) provides that the reconciliation statement
shall be furnished in the FORM GSTR-9C (format yet to be notified). The
provisions of Section 44(2) require reconciliation of the figures declared in
‘return furnished for the financial year’ with the ‘audited financial statement’. It appears
that the return furnished for the financial year refers to the annual return
furnished.
7.8 During the course of the
audit, any discrepancies found shall be corrected / rectified by declaring the
correct turnovers in the annual returns. In this regard, it may be noted that
the time limit for declaring the details of debit note/ credit note and for
taking the input tax credit would lapse in September of the following year,
whereas the annual return can be furnished by the end of December of the
following year. Where any discrepancies are noted during the course of the GST
audit post September, it appears that no recourse would be available to the
auditee.
7.9 There would be a challenge
in the reconciliation process in case of large entities having registration in
multiple States/UTs, since many transactions on which GST has an impact may not
have direct visibility in the financial statements.
E.g. Stock
transfers, free supplies, distribution of free samples, gifts, transactions
with related persons, supplies without consideration, goods sent on approval
basis, supplies through agents, etc.
7.10 The auditor must note that
the reconciliation statement can be prepared only when the audited financial
statements are made available. The law, however, does not explicitly provide
that the reconciliation must be prepared between the accounts audited by him
and the annual return, in case of registered persons whose books of account
have not been audited, say, in the case of non-company assessees.
7.11 Such other particulars, as may be prescribed – The Government is yet to prescribe
the format of audit report and annexures thereto. It is also not clear as to
whether the auditor is required to identify and report the discrepancies
month-wise or annually.
8.
Accounts and Other records
8.1 Every registered person
shall maintain the details of input tax credit (ITC) availed, stock of goods –
in value and quantity with description of inflow and outflow, production /
manufacture of goods, inward and outward supplies of goods and/or services
including imports and exports, supplies attracting tax on reverse charge,
details of advances paid / received, output tax payable and paid, etc. along
with the relevant documents such as invoices / bills of supply / delivery
challans / credit notes / debit notes / receipt vouchers / payment vouchers /
refund vouchers.
8.2 The registered person shall
also maintain the names and complete addresses of suppliers and recipients, and
the complete address of the premises where goods are stored (including goods
stored during transit). Goods found at a place other than so declared without a
valid tax invoice could be treated as a taxable supply. Also, any record
belonging to a registered person found at any premises other than those
declared shall be presumed to be maintained by the said registered person
unless proved otherwise.
8.3 The details contained in
the records are expected to be true and correct. Entries therein shall not be
erased / effaced / overwritten, and all incorrect entries, otherwise than those
of clerical nature, shall be scored out under attestation and thereafter the correct
entry shall be recorded and where the registers. In case of electronically
maintained records, a log of every entry edited / deleted shall be maintained.
8.4 Such records are required
to be maintained at the principal place of business (as appearing in the
certificate of registration), and in case of additional places of business
specified in the certificate, the records must be maintained in the respective
places. The registered person is also permitted to maintain the records in
electronic form.
8.5 Every owner or operator of
warehouse / godown / other storage spaces, and every transporter, shall
maintain records of the consigner, consignee and other relevant details of the
goods, even if he is not a registered person.
8.6 Every registered person
manufacturing goods shall maintain monthly production accounts showing
quantitative details of raw materials or services used in the manufacture and
quantitative details of the goods so manufactured including the waste and by
products thereof.
8.7 A registered person
supplying services shall maintain the accounts showing quantitative details of
goods used in the provision of services, details of input services utilized and
the services supplied.
8.8 A registered person
executing works contract shall keep separate accounts for works contract
showing the names and addresses of the suppliers and the persons on whose behalf
the works contract is executed, the details of description, value and quantity
of goods or services received and utilized for the execution of works contract,
the details of payment received.
8.9 Where records are generated
and maintained electronically, proper backup is to be maintained and preserved,
and shall be authenticated using a digital signature. On demand by the
officers, the registered person shall give the electronic record file with the
password.
9.
GST Audit program
9.1 In the absence of any prescribed
format for reporting of information to be furnished after the audit,
preparation of the GST audit program would not be complete. However, based on
past experience in audits, and considering the applicable provisions of the
GST laws, one can start preparing the audit program and finalise the same once
the reporting requirements are notified.
9.2 The audit program may be
prepared considering the various aspects to be covered in the report, i.e.,
checks to be performed to verify the following:
Ø
Whether the books of account and related records maintained are
sufficient for verification of the correctness, completeness and accuracy of
the returns;
Ø
Whether the annual return filed reflects the correct figures and
includes all the transactions effected during the year that require disclosure;
Ø
Whether the value of outward supplies, and inward supplies declared in
the annual return includes all the outward supplies and inward supplies,
respectively,
effected during the year;
Ø
Whether the inclusions and exclusions to / from the value of supply are
in accordance with the provisions of the law;
Ø
Whether the exemptions claimed in the annual return are in conformity
with the provisions of the law;
Ø
Whether the amount of ITC determined as eligible and ineligible have
been determined in accordance with the provisions of the law;
Ø
Whether the classification of outward supplies, rate and amount of tax
thereon, and nature of tax, is correct;
Ø
Whether the other information given in the return is correct and
complete.
9.3 Further, other relevant
information which the audit program should cover are listed as follows:
Ø
General profile and brief nature of the industry/ business of the
assessee;
Ø
Registration details, additional places of business, registrations in
other States, details of authorized signatories / persons in charge;
Ø
List of accounts and records maintained, and information on software
used;
Ø
Details of outward supplies, exports, supply to SEZ, tax paid under RCM,
supplies without consideration, etc.;
Ø
Details of outward supplies involving works contracts, composite
supplies, mixed supplies and continuous supplies;
Ø
Provisions of time and place of supply of all outward supplies of the
auditee;
Ø
Determination of transaction value and value of supply in accordance
with the Valuation Rules;
Ø
Compliance with the conditions for availment of credits, proportionate
credit availed, ineligible credit reversal, payment to suppliers, etc.
Ø
Details of goods sent for job work and receipt of the same along with
details of the process / treatment carried out during the job work;
Ø
ISD and cross charging;
Ø
Details of exemptions claimed and compliance of the conditions therein;
Ø
Payment of taxes and refunds claimed, compliance with related
conditions;
Ø
Departmental correspondences, notices and related compliances;
Ø
Relevant applicable standards/ guidance notes as available; and
Ø
The major analytical ratios.
10. Understanding the business of the auditee: The GST audit casts a
huge responsibility on the auditor,
and it is very important that the auditor is aware of the nature and complexity
of the business / operations of the auditee. When an auditee approaches a
Chartered Accountant for the first time, he must exercise due caution in assessing
how compliant the auditee is, from a GST stand-point. It may be advisable that
he prepares a suitable standard questionnaire (depending on the nature of
business and facts and circumstances of each case) in order to become familiar
with the business, modus operation of operation etc. It must also be noted that
a long / complicated questionnaire may not be effective, even if prepared with
a view to obtain a comprehensive understanding. The auditor may obtain a brief
from the auditee on the questionnaire to get the best results.
11. Special attention to transactions not appearing in the financial
accounts: There are several transactions which
may not appear in the financial accounts and records maintained by the
registered persons such as stock transfers, free samples, services received
from outside India from related parties, other supplies made without
consideration, etc. Due care must be exercised by the auditor to identify such
transactions as there may be no direct reference to these transactions in the
financial records.
12. Use of Software: The systems, processes and controls put in place by the business entity will largely define
the scope of the auditor in conducting an audit, in assessing the risks of the
audit as well as for planning the audit. It is important for auditors to be
conversant with various software. Many a time, the islands of information do
not talk to each other and present different values. Different
software tools are available for conducting an audit, and the one appropriate
to the auditee must be chosen based on nature of the audit and size of the
auditee. While selecting the software or software tool, the auditor must check
on whether the same is updated with the latest amendments. Since the audit under
the GST laws is being carried out for the first time, the auditor must be
attentive to the possible errors that could arise while using the software.
13. Challenges for the year 2017-18: There would be many challenges that an auditor as well as an auditee will
have to face while carrying out the GST audit for the financial year 2017-18,
being the first year of GST audit. Among others, some of them are listed below:
a. Multiple audits under
indirect tax laws: VAT audits may be required to be carried out for the first
quarter and GST audit for the next three quarters;
b. Lack of clarity in the GST
law, frequent changes in the law, issuance of more than 300+ notifications;
c. Failure of the matching
concept – whether it would be possible to identify if the supplier has failed
to remit taxes to determine eligibility of credits;
d. Complex procedural compliance under GST;
e. Reliability of the audit software is not tested;
f. Absence of / incomplete mandatory records;
g. High volume of procedural
lapses and non-compliances by the assessees, incorrect documents /
documentation procedures;
h. Transitional issues (law does address all types
of transactions).
14. Consequence of failure to submit the annual return: Section 47(2) provides that in case of failure to submit the
annual return within the specified time, a late fee shall be leviable –
Computation: Rs. 100 per day during which such failure continues subject to a
maximum of a quarter percent of the turnover in the State/UT.
There is no specific
penalty prescribed in the GST Law for not getting the accounts audited by a
Chartered Accountant or a Cost Accountant. Therefore, in terms of Section 125
of CGST Act, 2017 he shall be subjected to penalty upto 25,000/-. This section
deals with general penalty and gets attracted where any person, who contravenes
any of the provisions this Act or any rules made thereunder for which no
penalty is separately provided.
15. Suggested reference material – ICAI: The Institute, being the supreme regulatory body on accounts, audits
and financial reporting, provides all the information on these aspects. The
following are some of the important provisions, documents, which every auditor
must go through:
S. No.
|
Particulars
|
Relevance
|
1.
|
The Chartered Accountants
|
Member, COP, CA in
practice etc.
|
Act, 1949
|
||
2.
|
Appendices to CA Act,
1949
|
Council meeting
resolutions
|
3.
|
Schedules to CA Act, 1949
|
Professional misconduct
in relation to
|
chartered accountants in
practice
|
||
4.
|
Internal Audit Standards
(in
|
Internal audit is fairly
well developed
|
progress)
|
and those standards could
enable
|
|
effective audits.
|
||
5.
|
Chartered Accountants
|
Member, COP etc.
|
Regulations, 1988
|
||
6.
|
ICAI Guidance Note on
|
Guidance on various types
of audits
|
Auditing Aspects
|
||
7.
|
Code of Ethics
|
Ethics to be followed
while accepting
|
and conducting the audit
|
||
9.
|
Council General
Guidelines
|
Appointment of auditors
|
2008
|
||
10.
|
Standards on Auditing
(SA)
|
General principles &
responsibilities,
|
risk assessment, audit conclusions
|
||
and reporting.
|
||
11.
|
Technical literature on
|
Audit planning, Audit
documentation,
|
auditing
|
audit sampling, audits of specific
|
|
industry etc.
|
||
16. Audit Fees: Since the GST audit is being conducted for the first time, there would be a challenge even in
determining the amount of audit fee to be charged. One major difference would
be that there is good scope to provide value addition well within the framework
of law by updating oneself on the various notifications/ circulars and case
laws.
The Committee
for Capacity Building of Members in Practice (CCBMP) of the ICAI has
recommended the minimum scale of fee for various professional services, including GST
audit. The details of the same are available in the following link: https://resource.cdn.icai.org/47945ccbmp37942.pdf.
17. Some useful tips from a practice perspective:
a. One has to thoroughly
understand the nature of business with a view to quantify the severity of the
impact of GST in the course of conduct of an audit;
b. With a view of mobilize
human resources, one has to assess the auditee’s existing skill sets vis-à-vis
acquisition of new resources with the requisite skills or to hire external
support / expertise;
c. Proper estimation of the
timelines for commencement and closure;
d. Map the auditee’s
geographical spread, infrastructures, cost estimates, business and operational
threats with a view to evolve a work plan;
e. Conceptualization of the
work plan with a view to forming a core team, scope of audit, understanding the
operational and legal requirements, reporting requirements and milestones to be
achieved during the course of conduct of audit;
f. Analyzing and understanding
the contracts, transition issues, input tax mechanism, restrictions, blocked
credits with a view to forewarn the auditee;
g. Understanding the core
business of the auditee with a view to analyzing the supply patterns and
proactively develop a process flow with a view to optimize the time and cost
constraints;
h. Suitable checks and
balances must be evolved to build efficiencies in the system;
i. The work plan must be so
conceptualized with a view to ensuring that the errors of omission or
commission, deficiencies in the system, etc. are brought out;
j. Sufficient care must be
exercised that the data populated in the report / relevant forms, etc. are in
conformity with the financial statements;
k. The audit exercise must be
so framed with a view to ensuring that all the transactions of the business are
genuine and any unusual transactions are properly reported, noted or qualified
in the report;
l. An auditor must ensure that
transactions of exceptional nature, including non-monetary transactions, are
given adequate care with a view to ensuring whether they are taxable or not;
m. While evolving the
approach, an auditor must bear in mind that the standard auditing practices are
adopted, proper disclosures are made, views / opinions are either noted or
expressed and wherever required, either attention of the Management or the
Government is drawn;
n. Lastly, it is important to
create an entity-level checklist with a view to ensure that all the
transactions are adequately covered in the process of conduct of an audit.
18. Conclusion:
It is but
natural, that any auditee would expect that during the course of conduct of an
audit, an auditor would adopt the best practices and put the necessary system
checks and balances in place. {The updated internal control questionnaire of
the IASB could provide some pointers on evaluation of the internal control
system in place.} It must be understood that there is no prescribed method or
procedure under any statute for the conduct of an audit. An auditor is expected
to exercise due and adequate care, prudence, diligence and adopt the best
practices considering the complexity of each business and its surrounding
circumstances.
This paper is
very brief, given that the rules / forms are yet to be notified. It is written
with a view to elicit comments, initiate debates and provide a basic
understanding to the reader. It is fondly hoped that this paper would provide
to the reader some insight into the manner and method of conduct of an audit.
The views expressed herein are the views of the paper writer and cannot be used
in framing of opinions or devising methodologies for the purpose of conduct of
audits.
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Acknowledgements
We thank CA
Vasant Bhat, Mumbai for drafting this article and CA S Venkataramani, Bangalore
& CA. Ashok Batra, Delhi for reviewing the same. Feedback on article may be
sent at idtc@icai.in
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