FIELD AUDIT PROCESS & THE ROLE OF
TAX AGENTS

A tax audit is a process conducted by the Inland Revenue Board (IRB) which includes an intercalated set of steps that ultimately lead to a final tax audit report.

The decision to conduct a field audit or a desk audit by Inland Revenue Board (IRB) is reached when a thorough examination of the facts and circumstances relating to the taxpayer's case are considered.

Once reached, the decision is communicated to the taxpayer who is the subject of the audit process. The Tax Payer will then have the right to elect a firm, such as YYC Advisors - to deal with the IRB.

Notification of the taxpayer

The taxpayer has a right to be notified of any eminent audit process so that he can prepare himself for the same. The notification carries the date of the field audit, the proposed venue and timeframe.

The taxpayer can however reschedule the time, date or venue of the audit if his business premises are not suitable for such a process to be undertaken.

The notification is given 14 days before the commencement of the audit and it contains the years of assessment, names of the audit officers and documents and records to be prepared in advance.

Based on the information given in the notification, the taxpayer may decide to handle the audit officers himself or else employ the services of tax agents and consultants such as YYC.

Engagement of representation

YYC Advisors knows that in matters relating to tax, the taxpayer may not be conversant with thus leading to procurement of professional tax advisory services.

To set the ball rolling, YYC Advisors will brief the taxpayer on how he should respond to the IRB officers prior to the commencement of the audit process. The engagement of representation paves way for the preparation of audit documents.

Taxpayer's preparation of audit documents

For an audit process to run smoothly, the taxpayer may find it necessary to locate, arrange and if need be produce hard copies of relevant documents. This will enhance cooperation and smooth communication during the audit process.

A snapshot of the documents required reveals the following critical document categories.

-Income related documents. The IRB officers in a bid to compare the reported income vis-A-vis the actual income earned may find the perusal and subsequent studies of the following income documents necessary.

The bank statements, deposit slips, invoices, sales records and the general ledger entries among other important documents.

-Expenses and deductions. This is a very contentious area as taxpayers have a tendency of deducting expenses which should otherwise be included in the computation of tax returns.

They include; cancelled cheques, credit card payments and travelling & entertainment allowances among others.

-Loans and interests. The taxpayer should provide documentation in relation to any business loan paper work, cancelled cheques and any borrowed money to cater for business expenses.

-Payroll documents. Any salaries and remuneration given to directors and other staffs benefits should be supported by proper documentation which the taxpayer should stand to produce before the audit officers. In this category, audit officers will be looking at the accuracy, competitiveness and timeliness in the filing of returns.

Maintaining of documents

If the taxpayer acting through tax experts such as YYC Advisors, will be advised to stand in defence of any transaction and documentation relating to his business. He may find it useful in this stage to maintain a comprehensive log of activities undertaken by his business.

Organized and well maintained documents will enable the taxpayer to respond with certainty of fact and conscience therefore making the whole audit process credible. Using a professional and reputable firm such as YYC can also be beneficial to the end result.

Responsibilities and obligations of the tax audit parties

The parties involved in the audit have a responsibility which they must undertake with due diligence. The taxpayer, for instance, has an obligation under ITA 1967 to furnish, substantiate and avail any material information for the purpose of the audit as and when needed.

The tax agent or experts such as YYC Advisors on the other hand acts a conduit between the taxpayer and IRB tax officers to represent the taxpayer interests, facts and any relevant information with such degree of accuracy and competence as to enable a successful audit.

The IRB officers are guided by the IRB code of ethics and the powers bestowed them by ITA 1967. They are required to exercise professionalism, make reasonable demands and engage in non-partisan conversations with the taxpayer.

The IRB visit and access to taxpayer's premises

The IRB officers have the legal capacity to access not only the taxpayer premises but also any documentation recorded or otherwise, physical stocks, equipment and any other items that may be necessary for a smooth conduct of the audit.

Examination of documents

The documents provided by the taxpayer will be subjected to a detailed examination by the officers and pertinent questions asked in which the taxpayer will be required to answer with all honesty.

Where necessary the officers may take some documents from the business premises or make copies of the same while acknowledging through writing the documents that are in their custody.

Format of documents and records

The documents format should be readable and in the case where the information provided is recorded, the taxpayer is either meant to produce hard copies from it or provide access to the recorded records.

Duration of the tax audit

The average timing of a tax audit is between one and three days. However based on the intensity, complexity and nature of the business enterprise, the audit may extend for a few days or even months.

Ongoing documentation

During the entire audit process, the taxpayer who is the subject of the process is to ensure that he records all the relevant conversations and engagements with the IRB officers.

This is to provide a future reference incase of any disputed information with regard to the audit conversations and process.

Completion of tax audit

Based on the audit findings and careful examination of the same, clarification of information and documentation the IRB officers may then compile the audit findings report. The report is then sent to the taxpayer and any proposed income tax adjustments is included in the report.

It should be noted that the taxpayer can walk into the IRB offices any time to clarify some information, provide additional information or just check on how the audit process is fairing on.

The preliminary audit report can be either be accepted or disputed by the taxpayer leading to legal recourse which also attracts. When the process has ultimately been concluded and all disputes resolved then the final tax audit report is published and a copy sent to the taxpayer.

Contact YYC Advisors today and we can assist you with the field audit process. We are a reputable firm with a proven track record of defending clients successfully, and reaching resolution with the IRB.

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