Almost every business is subjected to audits at some point to ensure compliance with requirements. An auditing process can apply to an entire organization or to a specific function such as financial statements, tax information, compliances, or business operations to evaluate risk and performance at any point in time. Revenue audit is one such process to evaluate a company’s tax returns compared to its tax records. It is conducted to verify the relevancy and accuracy of income earned and expenditure incurred in accordance with the policies, circulars, and notifications.
A revenue audit is a process of examining the figure and information of a company’s tax returns shown in their business records governing income and expenditure. An auditor monitors and ensures tax compliances to identify any signs of tax fraud, invasion, or any other financial liabilities. They are also responsible for collecting interest, tax, penalties, and other liabilities as per the company’s financial transactions.
During the revenue audit process, an auditor examines all books and records related to tax information on the first day of the audit. He reviews taxpayer’s income returns over a period of one year. If everything matches with the tax records, the auditor creates the report and submits it to the concerned authority. In case there are significant discrepancies or misconduct in tax records, the revenue auditing process may extend in order to examine and review records for prior years.
A revenue auditor can ask for the following accounts, books, records, and other concerning documents to read and examine:
· The profit and loss account for the audit period
· The balance sheet of the previous year
· Concurrent audit report during the audit period
· The revenue audit report from last year
· Sales invoices if applicable
The revenue audit procedure is conducted through two main stages:
· Testing of the income statement, revenue accounts, and tax records
· Examination of all the accounts maintained in the balance sheet for the concerned year
In addition to these two processes, the auditor can also check for revenue issues, agreements, channels of agreements, and cash balances in order to evaluate the company’s financial operations. They will ask for anything to verify:
· Completeness of revenue
· Financial data accuracy
· Rights and obligations
· Revenue recognition
· Transactions and sales.
An auditor use procedures like completeness tests, cutoff tests, substantive tests, and other methods and tools to complete the whole revenue auditing process.
Objectives of Revenue Audits
· Monitor tax compliance and promote voluntary compliance
· Examine the accuracy of returns in relation to payments and tax liability
· Identify the matter of financial concerns, additional liabilities that need to be adjusted
· Collect interest, tax, and penalties where applicable
· Specify corrective measures and actions for the future
A revenue audit should be conducted by professional and certified auditors to examine the financial standing and performance of a company without any discrepancies. They can help you examine your revenue and tax returns against your financial accounts and books to verify your financial position accordingly with utmost accuracy.
