How to Handle Auditors and Have a Happy New Fiscal Year
With the upcoming statutory year end, auditors all over India are going to swoop into managers' cabins, and invariably be guests that are here to stay. Written by an audit intern, part of the frontline workers at every audit firm, this humorous piece seeks to highlight some common causes for friction between auditors and management. It juxtaposes the celebration of a new year with the celebration of a new fiscal year. 
 
Imagine, it is March 2020, and there is a stack of reports on your desk to be reviewed. Your accountant has just brought you a file with myriad reconciliations. There are bills waiting to be authorised, and yes, goods and services tax (GST) filings due. You cannot tolerate any more small-talk on the national Budget. Your family is acquainted with your late sittings in office. But all that takeout food is really affecting your health, you feel bloated and dull, all the time! And just when you thought it couldn’t get worse…
 
A team of auditors swarms into your office, and there you are, stuck in a quagmire of reporting deadlines. It is time to close the year – the financial year, and since this affects your boss and the bottom-line, that 1st January hangover seems like fun times of old!
 
This scene sounds familiar to you? Cause it is what March 2019 looked like, just like March 2018, and the year before that. But it is possible for you to have another celebration this year, even as late as the end of fourth quarter (Q4) – by ensuring an agile audit and a no-hiccups compliance exercise. 
 
Auditors have this evergreen joke about their work. And you might just appreciate it by the end of this article. 
 
Begin with the Year in Mind
 
It is the responsibility of the management to design, implement and maintain an effective system of internal financial controls, including controls over financial reporting.
 
That jargon loaded statement boils down to two primary roles – to demonstrate to the auditors, that business as usual was, indeed, carried out as business as usual. (Your auditor might call it internal financial controls -IFC, or internal financial control over financial reporting -ICFR).
 
And the second – the financials are being prepared with appropriate cut-off dates, and end of day means end of day. (This will be called the 'Financial Statements Closing Procedures').
 
So How Do You Demonstrate BaU (Business as Usual)?
 
The auditor here is looking for a risks and controls matrix. It documents the flow of work in every process, and is a way of ensuring that budgetary and approval exercises rightly address the 'what could go wrong' aspects of business. Now, typically, prepared by either the management or the internal audit team, having such a document made can seem a daunting task.
 
The essence is just this: any activity that happens in a business unit, or department, requires a set of checks, signs, approvals, and documentation. The auditor is firstly going to ask you to walk him through the sequence of these checks and signs, then he is going to systematically draw out certain transactions to see if any deviations from the walk-through were improperly dealt with. 
 
Proactively submitting those files, folders, and showing him the information technology (IT) enabled approval process ticks, will help him 'close the work paper' faster. 
 
And the second objective is to show to the auditor, that they can tick and tie numbers from your login screen, to the various reports generated by the system, and finally, to pristine financial statements that can be signed by the chief financial official (CFO), and directors. And that no business done after close of the day 31st March, is accounted for in that year (accounting nuances excepted).
 
He Said, She Said!
 
While it does not feel nice to be questioned on your work and integrity, the audit intern who probably is working on your area of operations, has been told quite strictly—“if it ain’t documented, it ain’t done.” 
 
So, help them document your effectiveness along the following illustrations: 
 
 
Now this is still no assurance that an auditor’s reconciliations will agree and tally with yours. But this still goes a long way in satisfying the audit team’s search for evidence of a ship sailing smoothly. 
 
Why Did You Do What You Did?
 
Explanations. The auditors are going to want an explanation for everything. They shall perform analytical tests to the summarised reports from your systems. Spent more cash on advertising - why? Had a drop in payroll expenses - whom did you fire? There is more inventory sitting in the warehouses—did you sell less or produce more?
 
These kinds of procedures are generally applied to areas which tend to have routine, and predictive characteristics. Think rent, utilities, payroll, insurance, interest from investments, loan amortisation etc.
 
There is no way one has kept a track of the why behind every what. But knowing the areas an audit intern is most likely to apply simple forecasting math is a cheat code to closing a process area and its scrutinisation. Drawing up a list of all the causes for known variances will reduce run-ins with the audit team. 
 
Here’s a list of areas that get scrutinised all the time: 
 
 
There Was a Joke Promised
 
The joke that was promised at the outset. Well, this is how it goes…
 
“Why did the auditor cross the road?”
 
“He looked in the file, and that’s what they did the previous year!”
 
Nothing captures the routines of auditors better than this joke. It is only wise to resolve quickly, some of the routine matters, and have them out of the way. There are genuine compliance matters that do crop up from time to time. And one must have a serious sit down and consult. But when you have a marathon to run, even a small pebble in your shoe could hurt a lot!
 
Maybe, and just maybe, having done some of the suggestions laid out here, you may go ahead and have a happy new fiscal year. All green lights!
 
(The author is an audit intern, having work experience spanning multiple corporate entities of various types. He has worked at a reputed big-ticket auditing firm, as well as a medium sized auditing firm. He is currently a student of chartered accountancy.) 
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    COMMENTS

    Kapil Gupta

    1 month ago

    Waooo....nice article. Wish you best for your carrier

    Budget may offer flat tax rate sans exemptions to individuals also
    The government is considering a proposal to extend further incentives to salaried taxpayers in the upcoming budget. The Finance Ministry may allow individual taxpayers to pay a lower flat rate of tax if they forego all exemptions.
     
    The new structure would be similar to tax rates proposed by Finance Minister Nirmala Sitharaman late last year where the base corporate tax rate was reduced to 22 per cent from 30 per cent for companies that agreed to forgo all exemptions and incentives. The tax was kept at even lower rate of 15 per cent for new manufacturing companies.
     
    "After tax sops for corporates last year, the government is looking at ways to incentivise the individual taxpayers that form a major source of revenue for the Centre. While major changes in tax slabs could wait for some time, a scheme similar to the one implemented for the corporate sector is being examined for individuals too," said a source privy to discussions on the issue in the government.
     
    At present while individual income upto Rs 2.5 lakh per annum is exempt from tax, a 5 per cent tax is levied for income between Rs 2.5 lakh and Rs 5 lakh. A higher 20 per cent slab is for income between Rs 5 lakh and 10 lakh while a 30 per tax rate is applicable for income above Rs 10 lakh. In addition, the government also levies a surcharge in slabs on super rich for income above Rs 50 lakh. 
     
    The source said that though there is broad understanding on implementing a flat income tax rate for individuals, discussions is still going on its quantum and how it could fit a tax structure that has three to four different slabs.
     
    Tax experts who did not want to be named on the issue told IANS that the government could look at a flat rate somewhere in between the 5 and 30 per cent income tax rates. The ideal would be around 15-18 per cent rate that would be lower than the peak rate of 30 per cent and the second rate of 20 per cent. Also, the new lower flat rate of tax may be applicable only for annual income of upto Rs 50 lakh.
     
    Sources said that a higher flat rate is also being looked at for the super rich but discussions on this have remained inconclusive. 
     
    At present, an individual can save upto Rs 1.5 lakh per annum under Section 80C of the Income Tax Act by making investments in insurance plans and few other specified instruments including buying a pension plan run under the NPS. An additional self contribution (up to Rs 50,000) under section 80CCD (1B) is available as NPS tax benefit. In addition, there are deductions for contributing towards paying premium for health insurance and for paying installment for homes bought on loans.
     
    While the flat rate of tax may be attractive to a certain category of taxpayers that want a higher share of their monthly earnings in hand, experts say the move could also dissuade people from increasing their contributions towards savings. India's household savings has dropped to 17.2 per cent level in 2017-18 from 23.6 per cent in 2011-12. Data for FY 19 is not available. Higher domestic savings is crucial to mobilise funds for investments in the economy.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    ISHWAR SATWANI

    1 month ago

    Government must increase the Basic Exemption Limit from Rs. 2.50 lakhs to 5 Lakhs. Public will be more happy in this, rather than having lower tax rates .

    Middle class people who have to pay exorbitant fees to CA as they have to compulsory file the Income Tax Return if their Gross income is above Rs. 2.50 Lakh.

    No body is interested in lower tax rates . People are already fed up due to complicated , Ever Upgrading GST Law , & filling somany returns under GST Law .

    BR

    1 month ago

    Why must tax exemption be only for Salaried people. Many do not get salary as they have no jobs given to them by others. Many are married, lost their privacy, freedom &ability to earn independently because they are house wives. Some orphans, sick, decrepit, old people live on savings. Salaried people of PSUs &Govt get much money these days. There is no need to consider ONLY THEM AS IF THEY ALONE EXIST. Must people are unemployed or not in govt sector. They must get Income Tax exemption.

    Ramesh Poapt

    1 month ago

    expect the unexpected ! but not a shocker!
    govt can't afford negative surprise this time!

    Rajolu Ramam

    1 month ago

    I never read any thing about income tax and the budget. What the media and the press guess, never came true. It is a futile exercise. Never the things come true. In olden days some benefits were there for women and senior citizens. Slowly they were with drawn. Housing loan, Intrest on housing loan exemptions are not useful to the senior citizens.

    Govt rolls back changed eligibility for filing ITRs in Form 1
    Those owning a single house in joint names would continue to file their income tax returns (ITRs) in much simpler ITR-1 (Sahaj) and ITR-4 forms (Sugam) for assessment year 2020-21 with the government issuing a clarification in this regard.
     
    The clarification has come days after the government modified the eligibility for filing the returns in ITR-1 and ITR-2, stating that those owning a property jointly, spending Rs 2 lakh on foreign travel and paying electricity bill of Rs 1 lakh in a year would not be able to file returns in the simpler forms.
     
    They would have to file their returns with much more detailed information in other specified forms.
     
    Following the changes in the eligibility for filing returns in the two forms, concerns were raised over it with taxpayers claiming that it will cause huge hardship for them.
     
    "The matter has been examined and it has been decided to allow a person, who jointly owns a single house property, to file his/her return of income in ITR-1 or ITR-4 Form, as may be applicable, if he/she meets the other conditions," a Finance Ministry statement said.
     
    "It has also been decided to allow a person, who is required to file return due to fulfillment of one or more conditions specified in the seventh proviso to section 139(1) of the Act, to file his/her return in ITR-1 Form," it added.
     
    Tax practitioners welcomed the government move of going back to the previous position.
     
    "This is a welcome clarification allowing middle class taxpayers owning a single house property to file simpler ITR forms, 1 and 4, and not the detailed ITR forms even if they own house property in joint names," said Shailesh Kumar, Director, Nangia Andersen Consulting.
     
    It may be noted that taxpayers holding multiple house properties would have to file more detailed return forms.
     
    In the major changes notified earlier this month by the Income-Tax department, individual taxpayers were disallowed to file return either in ITR-1 or ITR 4 if he or she was a joint-owner in house property.
     
    In another change, those deposited more than Rs 1 crore in bank account or spent Rs 2 lakh on foreign travel or paid Rs 1 lakh on electricity bill in a financial year were also barred from using the easy-to-fill return forms.
     
    "By today's clarification, the government has maintained status quo. Now, the taxpayers can continue filing their returns in the same fashion in which they did last year," said Naveen Wadhwa, Deputy General Manager (DGM), Taxmann.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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