Rules Related to Selection for Tax Audit Purposes

Selection is based on some steps, explained below.

fleeting review of audits conducted during the same period of past year

Based on the experience from the past but also on the examination of trends and risk examination by software’s in IT, the head of section proposes priority sectors for audit to the Head of tax office. These sectors will then be reflected in the audit plans. Establishing priority sectors for audit is not a instinctive action but the outcome of analyses of objectives and their fulfillment and impact on the accomplishment of programs.

Identification of economic activities for audit priority using management reports

The heads of audit offices in cooperation with the head of section should have good knowledge of the economic activities which are continuously observed by the assessment and collection inspectors. After making a preliminary analytic assessment, they should also use management reports in order to take into consideration the economic sectors and activities which require greater attention. In order to make this decision they should use multiple supplies of information, other tax office sectors’ knowledge of businesses and most problematic activities in terms of hiding obligations. Finally, they should focus on the activities which demonstrate deviations from the average of the sectors in which they function or repeated situations of non-declaration of their activities and tax obligations thereof.

Identification of high risk taxpayers using results from selection program based on IT system

Identification of high risk taxpayers and presentation of a monthly plan consists of one of the most important steps in the examination to estimate hiding and avoidance by taxpayers. In fact, the complete audit course of action is a risk-based assessment course of action. However, identification of high risk areas in the audit plan has to do with general risk trends and audit potentials, in order to orient work in those areas where risk potentials are more probable and higher. In this identification course of action, the purpose of audit would not be oriented towards all risks, but, instead, it would focus on those risks and taxpayers which can have a decisive impact on the accomplishment of the objectives.

Risk assessment and period from last audit

Risk assessment implies the identification and examination of risks threatening the accomplishment of audit objectives by establishing types and methods of audit, so that such risks can be avoided or reduced. Awareness of the fact that economic, industrial, technological, regulatory and operational conditions continuously change would help to continuously and consequently adapt the methods used for risk identification.

Based on risk assessment and priorities established above, the heads of audit offices in cooperation with the head of section will choose the audit scheme to be adopted (complete audits, topic audits, etc.). When choosing the audit scheme, the head of section should clarify the time since last audit and be oriented by it. The longer this period of time is the more imperative the need for audit will be. however, in the monthly plan the head of section should present the audit scheme to the Head of tax office. Such scheme should be supported with arguments and reasons for the causes of without of audits in some taxpayers.

The time and efforts spent for an audit should be in proportion with the risk that taxpayers represent in terms of revenues. In order to make the best use of time, the majority of audits will be fiscal visits conducted in short time periods to check the accuracy of declarations and payments. Audit is conducted for a chosen tax period and can only be limited to one chosen kind of tax.

Ensuring audit quality

In order to fulfill the monthly audit plan, the head of section should estimate the level of use of auditors’ fiscal capacity. The monthly plan also includes improvements to be made in terms of auditors’ qualification by a program attached to the plan. The head of section also presents the improvements to be made in terms of audit methodologies, techniques and the auditors’ time management.

The monthly plan should convince the Head of tax office and Director of Audit Directorate that audits will be conducted in high quality and in compliance with the most progressive standards. For this, the head of section presents the complete set of technical and organizational measures to be taken in order to ensure the required audit quality.

If, during a preliminary observation, the head of audit section finds that the quality of audit for a chosen tax is in high standards, the review of selections made can guarantee that the plan is effective and in observance of audit objectives. In order to effectively use audit resources it is necessary to realistically estimate the risks in the time of action of fulfillment of objectives and avoid the risks that might come from failure to audit. It is also necessary to establish an optimal ratio between these factors and the frequency of audits.

Considering civil legislation requirements to restore obligations resulting from damage or other types of obligations inflicted upon taxpayers in relation with employees and third parties, in addition to the above factors, the mandatory maximum audit deadline is no less than one audit every two years.

How to manage the number of inspectors obtainable in accordance with audit objectives

Audit plan is closely related to human, material and financial resources needed to conduct the audits. This includes the forecast number of days and people spent for each audited taxpayer and the cost of audit in general. After calculating the necessary time based on the number of people obtainable, it is compared with the necessary time required for fulfilling the audit plan, identifying the risks which might have a negative impact on the fulfillment of the audit plan, such as: insufficient material, financial and human resources obtainable, limited structures, sick leaves and inspectors and failure to substitute them in due time for various reasons, etc.

Duration of audit is determined according to the program and it is foreseen that the auditor will finalize the audit work and write the report during the audit visit within the established deadline. In case of insufficient time, the auditor reports such fact and the reasons behind it in writing to the head of section and the latter presents the request and the reasons to the Head of tax office. After analyzing the request for additional time and based on the amount of transactions, local offices and units, the Head of tax office asks headquarter to authorize additional time for the audit. The auditor cannot audit in the taxpayer’s premises beyond the time stated in the authorization.

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