The value added tax (VAT) is a tax that is levied on the difference between the price of a commodity before taxes are added and the final production cost. The objectives of a VAT audit are to evaluate the accuracy, completeness and validity of the organizational accounting process for the VAT. The audit is typically conducted by gathering electronic and written documents, and conducting interviews with responsible individuals within the organisation.
Conduct interviews with staff responsible for administrating the VAT in order to understand the VAT accounting process. Review whether staff have received comprehensive guidance regarding the accounts payable process for VAT, and whether VAT forms are finished and submitted in a timely manner. Assess whether tax summaries and analyses are checked on a consistent basis in relation to the total value of the tax, and review the accounting reconciliation methods for recording the VAT input and output.
Verification of VAT Procedures
Verify that the organizational tax processing system for generating sales orders automatically creates the correct tax values by reviewing the VAT levied by type of goods or services sold or by type of customer. The tax processing system should always accurately calculate the VAT based on the applicable rate.
Review Accounts Payable
Choose a section of VAT-related accounts payable files and confirm that the payment on the invoice matches the information in the tax processing system, that the supplier has a registered VAT number clearly located on the invoice, that the goods and services invoiced qualify for the VAT, that the correct calculation of the VAT has been processed, that expenditure related invoices are reviewed for validity, and that input tax is reclaimed by the organisation.
Review the organizational computing system to ensure that the mathematical reliability of the VAT calculations are valid. Access the organisation's customer-based master file and examine whether customers are assigned the correct VAT rate based on their country of origin. Conduct a check of system integrity by reviewing tax processing system menus for VAT indicators. Assess the attainment and removal of capital assets and other transactions related to improvements that were processed during the audit period for accuracy of VAT calculations. Perform VAT calculations for items that are exempt from VAT to ensure that the tax processing system is not assigning taxes to non-VAT items.
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