This is my second post on the topic GST Audit Desk Review which will help you all to focus on the key areas.
Click here to read the 1st part of the article
To begin with-
1. Understand the domain of your assessee: Like the trade practices, policies, ratio trend, sales trend, etc.
2. Try to figure out the issues that may prevail: Like accounting treatment of various items (receivables/ payables, etc.), effect of transactions in the long run, abnormalities, errors, known lapse in procedures.
3. Check out the tax compliance: Like whether the assessee is regular in tax compliance and is there any specific treatment for reimbursements/ perquisites, etc., consequences of non-compliance.
4. Assess the whole system prevalent in the entity: Like suppliers' compliance, customers' profiles, non-supply movements which do not have trail in e-way bill, e-way bill records, invisible supplies which involve netting of transactions.
5. Set up testing parameters for the business of the assessee to check the performance of the business.
Also, to have a deep understanding of your auditee/ assessee, you need some more documents. You can either ask for them from your asseesee or you can have their access from the GST portal (for this, you need to have the login id and password).
Following are the documents:
* GST returns + Cash ledger/ Credit ledger
* Financial statements with Trial Balance
* Company's Internal Audit Report + Tax Audit Report + Cost Audit Report
* Any other registration details, returns, declarations with any other departments
* Show Cause Notices, if any with their status
After going through the above points, you can plan your audit techniques in an effective manner.
Now, let's discuss some of the important areas that need attention at the time of desk review itself and these areas will definitely help you to perform further audit procedures efficiently. Here we go:
1. SUPPLY- This is important because ultimately stakeholders and the users of the financial statements rely on the accuracy of our report. Following points should be taken care of:
Existence of valid inward supplies, Transportation and delivery details, HSN of 'in-transit' supplies, deemed supplies, GST payment on supplies, High prepaid costs which may indicate some supply, High reimbursement costs which may indicate some supply, supply in case of E-commerce operator, supply in case of Pure agent, GST passed on to customer, Analysis of income and expenditure sides of accounts (specially credit side of expenditure) and finally the Completeness of GST Returns in terms of data on supply.
2. MARGINS- This is important because business between unrelated parties does not mean unlimited profit margin. It has to be reasonable. Following points should be taken care of:
Identification of margin abnormalities and their justification by the authorized person, Analysis of non-monetary gains, Examination of Director's report/ TP bench-marking report/ Sales report for collecting margin data, Margin uniformity in case of 2 different supplies related to same project, Margin validation based on nature and classification of supplies.
3. CREDIT CONTROL- This is important because Input tax credit once availed can decrease the tax burden on the business entities and auditor's complete satisfaction is necessary in this case. Following points should be taken care of:
Maintenance of invoices and documents (preferably in physical form), verification of their completeness and accuracy, check on receipts, review of supplier's compliance like review of GST returns/ treatment of defaults made/ analysis of creditors , review of hurdles in credit, accounting treatment of credit, end-use review.
This is not an exhaustive list. Other issues may also prevail depending upon the nature of business of the assessee. Ultimately, a GST auditor is required to exercise due diligence while conducting the audit.
Hope you find this article helpful.