ASSIGNMENT NO:1
NAME:
Waleed Tariq
SUBMITTED TO:
SIR HAMZA
SUBJECT:
TAX
ASSIGNMENT TOPIC:
AUDIT
CLASS:
LLM SEMESTER 2ND
CAMPUS:
UNIVERSITY OF LAHORE
Introduction
The audit is an intelligent and critical examination of the books of accounts of the business.
Audit is done by the independent person or body of persons qualified for the job with the help of
statements, papers, information and comments received from the authorities so that the examiner
can confirm the authenticity of financial accounts prepared for a fixed term and report
comparison of the balance sheet and accounts with the books. But, apart from doing this, he has
to satisfy himself according to his information and the explanations given to [Link] are
various kinds of audit being conducted under different laws such as company audit/statutory
audit conducted under company law provisions, cost audit, stock audit etc.
Meaning of Auditing
The term audit is derived from a Latin word “audire” which means to check the authenticity of
accounts and assured it with the help of the independent [Link] audit mean inspection oof the
book of account of an organisation. Auditor has to check the effectiveness of internal control
systems for determining the extent of checking out the [Link] its meaning and use were
confined merely to cash audit, and the auditor has to ascertain whether the persons are
responsible for the maintenance of accounts had adequately accounted for all the cash receipts
and the payment on behalf of this principle.
Definition of Audit:
The term audit has neither been defined in the Income Tax Ordinance 2001 nor in the General
Clauses Act. Different authors define audit as under:
“An audit is an examination of accounting records undertaken with a view of establishing
whether they correctly and completely reflect the transactions to which the purport to
relate.” Lawrence R. Dickey
“Auditing is a systematic examination of the books of records of business or other organization
in order to ascertain or to verify and to report upon the facts regarding its financial operations
and the result thereof.” –Prof. Montgomery
Audit may be said to be verification of the accuracy and correctness of the books of accounts by
an independent person qualified for the job and not in any way connected with the preparation of
such accounts.” -J.B. Bose
Conducting of audit.
The commissioner may select any person for an audit of the person’s income tax affairs having
regard to-
(a) the person’s history of compliance or non-compliance with this Ordinance;
(b) the amount of tax payable by the person;
(c) the class of business conducted by the person; and
(d) any other matter that the commissioner considers relevant.
Whenever the Commissioner call any person for audit the commissioner after recording
reasons in writing call for record or documents including books of accounts of the taxpayer and
that is communicated to the taxpayer as it is.
After going through the record if commissioner is not satisfied.
If the commissioner is not satisfied after going through the record under sub-section (1), the
Commissioner shall conduct an audit of the income tax affairs.
Including
examination of accounts and records
enquiry into expenditure, assets and liabilities of that person.
After completion of audit.
After completion of the audit under sub-section (5) or sub-section (8), the Commissioner may, if
considered necessary, after obtaining taxpayer’s explanation on all the issues raised in the audit,
amend the assessment under sub-section (1) or sub-section (4) of section 122, as the case may be.
Taxpayer is not precluded by re auditing:
The fact that a person has been audited in a year shall not preclude the person from being
audited again in the next and following years where there are reasonable grounds for such audits,
particularly having regard to the factors in sub-section (4)
Special audit panel.
Section 177(11) provide mechanism for the formation of special audit [Link] to that:
The Board may appoint as many special audit panels as may be necessary, comprising two or
more members from the following:
(a) an officer or officers of Inland Revenue.
(b) a firm of chartered accountants .
(c) a firm of cost and management accountants.
(d) any other person including a foreign expert or specialist as directed by the Board, to conduct
an audit.
(e) a tax audit expert deployed under an audit assistance programme of an international tax
organization or a tax authority outside Pakistan:
Head of special audit panel.
Section 177(12) Special audit panel under sub-section (1) shall be headed by a Chairman who
shall be an officer of Inland Revenue.
IN case member of panel is absent.
If any one member of the special audit panel, other than the Chairman, is absent from
conducting an audit, the proceedings of the audit may continue, and the audit conducted
by the special audit panel shall not be invalid or be called in question merely on the
ground of such absence
Function performed by special audit panel.
Functions performed by an officer or officers of Inland Revenue as members of the special audit
panel, for conducting audit, shall be treated to have been performed by special audit
[Link]-Section (17): The Board may prescribe the mode and manner of constitution,
procedure and working of the special audit panel.
Automatic Audit Selection and closure of audit:
those taxpayers who have been selected automatically for audit u/s 214D due to late All filing of returns
for Tax Year 2015, 2016 and 2017, have now the opportunity for automatic closure of audit u/s 214E by
paying the penalty or higher tax than previously filed return, whichever is applicable under the law
• Pay 25% more tax of tax paid with return
• or pay 2% of turnover tax,
• If both options do not apply, pay penalty for late filing of return CIR may select for audit on the basis
of definite information or otherwise
Audit Conclusion
The auditor must compare the upper deviation rate to the tolerable rate in the sampling plan. If
the upper deviation rate is less than the auditor's tolerable rate, the auditor would consider the
control effective. Alternatively, if the upper deviation rate exceeds the auditor's tolerable rate, the
auditor would consider the control ineffective.
All audit sampling plans use the upper deviation rate as the basis for an audit conclusion because
it includes an allowance for sampling risk, which provides protection against undetected
deviations
Reference
[Link]
[Link]
* Section 177 of ITO Selection for audit by the Commissioner
Judgment of Supreme Court of Pakistan in Civil Appeal No 526/2013 confirming judgment of Lahore
supreme court reported as 2013 PTD 837