TMI BlogWHAT IS EXCISE AUDIT 2000X X X X Extracts X X X X X X X X Extracts X X X X ..... system of Internal Control are the main features of this audit. It also lays emphasis on gathering data about the assessee, understanding his financial and accounting system, studying the flow of material, cash and documentation and run tests to evaluate the vulnerable areas. Armed with this information, the auditors prepare an Audit Plan and conduct verification according to that plan. The system requires documenting each step of audit scrutiny and invites the assessee to give his views on all the objections. The ethos of EA 2000 audit is to resolve the tax non-compliance issues by way of constant consultation with the assessee. It aims at settling the audit disputes by way of consensus as far as possible. It involves discussions between senior officers from the department and senior officials of the assessee in the atmosphere of mutual understanding. The stress is therefore on correcting the factors, leading to non-compliance. The broad principles are: [i] Audit will be conducted in a systematic and comprehensive manner. [ii] Emphasis will be on scrutiny of records maintained in the normal course of business. [iii] Audit effort will be based on materiality principle - h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough discussions with the senior management. In the case of bigger units paying annual PLA revenue of over Rs. 1 crore, this may be done during a brief preparatory visit to the unit and in other cases at the beginning of the single visit for audit-verification. A sample reconciliation of the tax returns with the financial accounts is done. This information collected is documented so as to test it against the actual functions during 'walk through' conducted while evaluating the internal control. 4. Evaluation of the Internal Controls. Internal Controls form a basis for reliability of the company's own accounting records. The evaluation of Internal Controls is necessary for determination of the scope and extent of audit checks required for the assessee. If the internal controls are well designed and working properly, then it is possible to rely on the books maintained by the assessee. The scope and the extent of the audit can be reduced in such a case. The reverse would be true if the internal controls are not reliable. It is essential to test the application of internal controls in practice to judge and form an opinion about how effectively the prescribed procedures are act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scope and duration of the audit. 5. Revenue Risk analysis. Having assessed the reliability of company's accounting records, the next is to assess the "potential" risk to the revenue. If the risk is low, i.e. r records are accurate; the extensive tests may not be required. There are several methods to assess the revenue-risk, such as, comparison of the derived [from financial records] dutiable clearance and tax liability vis-à-vis clearance shown and duty paid. 6. Trend analysis. This is an important step in assessing a company's accounting records. Analysis various trends will help highlight unusual situations or abnormal trends. Trend analysis involves comparing operations from year to year and comparing with other units in the same sector. 7. Developing the Audit Plan. This is one of the most significant steps in the audit programme. The auditor assesses all the information gathered about the assessee and develops a plan to examine detailed records related to the areas where material problems are indicated or foreseen. The Audit Plan is documented in the Working Papers. They should ensure that it is consistent with the complexity of the unit, materialit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunity to know the objections and to offer clarifications with supporting documents. This process will resolve potential disputes early and avoid unnecessary disputes. 13. Compliance of Audit objections. Where the assessee is in agreement with the audit findings, in part or in full, the auditor requests that payments be made promptly to stop accrual of interest. Voluntary compliance should be encouraged so as to avoid protracted legal wrangles. Attention of the assessee is invited to sub section [of Section 11 A of the Central Excise Act, 1944. 14. Future Compliance. This is the final step before the auditor leaves the assessee's premises. The auditor discusses with the assessee, steps to improve compliance including systemic improvement and modifications in the legal arrangements. 15. Reporting. The draft Audit Report is completed at this stage after the auditor has recorded all the findings against each of the detailed audit steps. All the Working papers are included as attachments to the final Audit Report. 16. Audit Follow up: After the submission of the Audit Report along with the Working papers, • The Superintendent in-charge of the audit team di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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