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TMI BlogIllustrative List of Important Documents for Scrutiny at Desk Review StageX X X X Extracts X X X X X X X X Extracts X X X X ..... e of statutory audit, a separate report under CARO (Companies Auditor's Report Order, 2003/2015) is required to be given. Nature of verification: (i) The Auditor's Report should be studied to find out any qualified/adverse opinion given by the auditors which may have impact on GST liability. For example, Auditor may report that goods meant for outward supply, available in stock were not reconciled or provision for obsolete items have not been made during the year. Tax auditor may like to examine such opinion in detail. ii) Company Auditor's Report Order (CARO) may be studied to find out whether the fixed assets records have been maintained properly or whether physical verification of inward supplies and goods meant for outward supply was undertaken and whether any discrepancies were noticed on such verification or whether the company has maintained proper records for unserviceable or damaged goods. iii) CARO also shows disputed tax liabilities separately for Customs, Income Tax, GST etc. Cases booked under Income Tax may be examined to find out any implication on GST. iv) In the case of Public Sector unit, C & AG report and comment of the company available in the Annual Report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion aspects needs to be examined in the light of CGST Rules. (ii) Study of fixed assets schedule may show additions and deductions to the fixed assets during the year. For the deductions made during the year, verification may be made as to whether appropriate GST has been paid. 4. Notes to the Accounts These notes are part of the Profit & Loss Account and Balance Sheet. These notes may be inserted by the company as per the requirement of the Companies Act or may be added at the instance of Statutory auditor. These notes are very important to a Tax auditor as these reveal important transactions or the important accounting policies followed by the unit. Nature of verification: (i) Notes of Significant Accounting Policies may be studied to find out the accounting policy in the areas like revenue recognition or determination of obsolete stock. (ii) Notes on quantitative information on inward and outward supplies may reveal number of interesting aspects. Cases of use of inputs for other purposes (not in the course of business or furtherance of business) may also be noticed from the study of such information. Adjustment for shortages, losses etc. may also be reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit balances) available in the Trial Balance like Job Work Income Account, Erection and Commissioning Income Account, Commission Account, Recovery of Freight/Advertisement Charges Account Technical Consultation Income Account etc. should be selected to verify whether these income can be added to the assessable value for payment of GST or whether these are liable for payment of GST. 6. Cost Audit Report Cost Audit Report provides quantitative and financial details regarding production, clearance, capacity utilization, input-output ratio, related party transaction, valuation of production along with reconciliation of annual turnover with taxable value of Goods produced as per the GST returns. The Cost Auditor in his report gives the information/details on the cost data for the company as a whole as well as in the respect of each plant/unit of the company located at different locations, thus study of the report helps the audit officer in comparison of various information/details across the plants and units. The details of relevant paras useful for GST Audit are given in the table below: In case Registered person is not covered under the cost audit, the Audit Officer ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one 1. Annual Report & Director's Report The Annual Report prepared by a company inter alia contains the following: i) Director's Report (ii) Statutory Auditor's Report (iii) Balance sheet and Profit & Loss Account (iv) Financial statements of subsidiary companies, if any. Director's Report: Director's report may, inter alia, contain information about- a) Foreign Exchange earned during the year. b) Foreign Exchange paid during the year, e.g. may be on account of taxable services provided by the Registered person/Taxpayer where he is liable to pay GST under reverse charge mechanism. c) Information on the operations carried out by the Registered person/Tax payer during the year under report. This may help in finding the exact nature of services provided by the Registered person/Tax payer. d) The facts stated in Director's Report should be reconciled with the GST Returns. Auditor's Report: It is the most important report contained in the Annual Accounts of a Company. The statutory auditor certifies as to whether the books of account of the company are properly maintained or not and also whether internal control mechanism is commensurate with the size ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated on the amount paid towards taxable services received. Reimbursement- unless the concept of 'pure agent' is applicable as stipulated under Rule 33 of CGST Rules, 2017, reimbursements are includible in the value of Taxable supplies. Reconciliation should cover all receivables including reimbursements, supply of goods etc a) Income Accounts: Normally, the Profit and Loss Account would show a consolidated entry for business income from all sources. According to accounting standards, non-business income such as interest income or dividend income is required to be shown separately. To begin with, auditors should call for the groupings of business income shown in the Profit and Loss Account. The said groupings would show the different heads under which the incomes have been accounted for. They should carefully study the nature of business income - some of which may have accrued from the supply of taxable services and the balance from the supply of non-taxable services. The exact nature of these services may be determined from the supporting documents such as vouchers, bills or contracts. In doing so, auditors need to be guided by the nomenclature (used for each service) in the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign Exchange related transactions are also given in the notes on accounts. Management can use these figures to show book profit to suit their requirements. Netting of amounts of revenue or expenditure can also be resorted to by the management although as per accounting standards it is mandatory to specify the figures separately. Scrutiny of Notes will also reveal as to whether there was any change in the system of accounting. For example- a Taxable person changes from cash system of accounting to mercantile system. The notes also indicate the impact of accounting Policies on various liabilities including the tax liability of the Taxable person. Therefore, the auditor must read the notes carefully. 5. Trail Balance Nature of Document :- Trial Balance is a statement showing balances of all accounts in the ledgers as on a particular date. In other words, it is a summary of the ledger account maintained by a Taxable person. The final accounts, namely, Profit & Loss account and Balance Sheet are prepared from the Trial Balance only. From the Trial Balance, similar accounts are grouped together and these are transferred to the Profit & Loss Account and Balance Sheet. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same was paid to foreign entities. Moreover, auditor may go through the source documents about the scope of work and terms of payment to assess the tax-compliance on Royalty & Technical Know-how. 10 - Related party transactions Auditors may use this information with regard to valuation of related party transactions. 7. Scrutiny i. Clause 18 of the Tax Audit Report provides information about amount of depreciation under Section 32 of the Income Tax Act, 1961 and that of ITC availed by the service providers on capital goods. ii. Clause 27(a) of the Tax Audit report gives the details of ITC claimed. It also provides the details of credit available and carried forward to the next year. Hence, the Auditor can authenticate the amount of credit carried forward in the GST returns with the information provided in terms of this clause. iii. Clause 21(b) of the Tax Audit Report also gives information regarding prior period incomes and expenses booked in the year under Tax audit. The Auditor shall ensure that GST is paid on these amounts in case they are subject to GST. iv. Clause 39 of the Tax Audit Report provides the information relating to Cost Audit. If such an audit has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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