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Structure of the discussion

Peer Review Stage III Vs Tax Audit

Tax Audit latest ICAI announcements Accounting Standards issued by CBDT

Accounting Standards applicability to Tax Audit

AS Vis--vis Income Tax Act

AS of ICAI Vs AS of Income Tax Act Implication of AS of ICAI on Taxation

Common pitfalls in reporting

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Peer Review stage III

Covers tax audit assignments

Statement of Peer Review issued by ICAI

Quality of audit report

Compliance with Technical Standards

Compliance with Technical Standards Accounting Standards

Compliance of Guidance Notes

Auditing and Assurance Standards

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AS and Tax Audit

Case 1

Statutory Accountsyear ended

March 31, 2010

Case 2

Statutory Accountsyear ended

Dec 31, 2009

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Accounting Standards under IT ACT

NAS1 Significant Accounting Policies

NAS2 Net Profit or Loss and Changes inaccounting policies

If an enterprise complies with NAS1 and NAS2but does not comply with AS issued by ICAI What to do?

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Accounting Standards not applicable to Tax

Audit A myth or reality?

General purpose financial statements

To be subjected to audit what about compilation?

Subject to audit but not carrying on any

Business or Industrial or Commercial activity

Concept of Materiality

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Accounting Standards not applicable to Tax

Audit A myth or reality?

What about Not for Profit Organisations?

Management or Auditors who is responsible for compliance?

What is the impact of

Companies (Accounting Standards) Rules 2006?

Any impact with the introduction of

Roadmap to IFRS?

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The Notified standards by

and large follow the ICAI

standards except for

certain differences

Companies (Accounting Standards) Rules 2006

Central Government, in consultation with NACAS, has issued the

Companies (Accounting Standards) Rules, 2006 notifying

accounting standards 1-7 and 9-29, effective for COMPANIES for

accounting periods commencing on or after 7 December 2006

ICAI standards would

remain applicable for non-

corporate entities

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AS of ICAI Vs AS under CAR 2006

Relaxation mainly for disclosures and not for recognition and

measurement

Applicable

Only to

NCEs

Applicable

Only to

Companies

Three

Levels

prescribed

Two

Levels

prescribed

AS of ICAI CAR 2006

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Applicability an overview (CAR 2006)

Accounting Standards Non SMCs To SMCs

AS 1 to 14 (except AS 3), 15,16, 18, 19, 20, 22, 24, 25, 26, 28and 29

AS 3, 17

AS 21, 23 and 27 (Only ifregulator requiresconsolidation or entity

prepares consolidatedfinancial statements)

Some relaxation on

disclosures

Care for applicability of AS

18

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Applicability an overview (NCEs)

Accounting Standards Level I Level II Level III

AS 1 to 14 (except AS 3), 15, 16,19, 20, 22, 25, 26, 28 and 29

AS 3 and 17

AS 18 and 24

AS 21, 23 and 27 (Only if entity

prepares consolidated financialstatements)

Some relaxation on

disclosures

AS 15 relaxation for

entities with less than 50

employees

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Form 3CA & 3CB

Suggested reporting on Form 3CD

Materiality Concept

Responsibility and Scope Para

Particulars given in Form No. 3CD and the Annexures

thereto are furnished by the Companys management. In

accordance with the Guidance Note on Tax Audit under

Section 44 AB of the Income Tax Act, 1961 issued by the

Institute of Chartered Accountants of India our examination

is carried out on a test basis to obtain reasonableassurance that the particulars as disclosed in Form No. 3CD

and the Annexures thereto together with the notes thereon

are free of material misstatement.

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AS 1 vis--vis Tax Audit

AS 1 Disclosure of Accounting Policies

Concept of prudence is not fully

considered

Certain provisions/ write off not allowedas expenditure

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AS 2 Valuation of Inventories

Market value Vs Net realisable value

AS 2 does not prescribe valuation method

for inventory of shares, debenture etc

Section 145 A of the IT Act

Inclusive method under the IT Act

Exclusive method under AS 2

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AS 7 Accounting for Construction Contracts

% completion method Vs completedcontract method

Accounting for foreseeable future loss

Presumptive taxation u/s 44ADPresent limit Vs limit proposed by DTC

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AS 10 (Revised) Property, Plant and Equipment

Ready for the intended use Vs put to use

Whether depreciation claim is optional?

Idle machinery under AS 10

Recognition criteria for Subsequent

expenditure

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AS 11 The effect of changes in foreignexchange rates

AS 11 controversy still continues even afterthe introduction of Companies AccountingStandards Rule 2006

Treatment of unrealised forex loss adjustedin the carrying value for Income TaxDepreciation

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AS 12 Accounting for Government Grants

If condition attached subsidy can not be fullyreduced from the cost as per AS 12

To be reduced from Cost of asset for IT

depreciation computation

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AS 13 Accounting for Investments

Current Investments to be written down to

market value if it is lower

Permanent diminution in value of Long-Term Investments to be provided for

If so provided not allowable under IT ActOnly on disposal

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AS 15 Accounting for Retirement Benefits

Provision for Gratuity Sec 40 A (7)/ 43B

Provision for Compensated Absence 43B

Bonus Vs performance incentives

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AS 16 Borrowing Costs

Concept of Qualifying Assets

Suspension of borrowing cost whetheradmissible under the Income Tax Act

Capitalisation of borrowing Costs Vs 36 (1)(iii)

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AS 18 Related Party Transactions

Divided position of definition of related

party

Reconciling and considering the impact ofdisclosures

AS 18 Vs 40 (A) (2)(b)

Loans to Directors and their relatives

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AS 19 Accounting for Leases

Depreciation allowability on finance leases

Lessor under the Income Tax Act

Lessee under AS 19

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AS 22 Taxes on Income

No concept of deferred tax under the IT Act

Reversal of DTA for MAT computation recent judicial pronouncement

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AS 26 Intangible Assets

Amortisation over useful economic life

Retirement of intangibles to be fullycharged off

Depreciation rate specifically mentionedunder IT Act Distinction between Intangible Asset and

Computer Software

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AS 28 Impairment of Assets

Impairment to be tested at every balancesheet date and loss to be accounted as an

expense

Not allowable till the asset is disposed

Reversal of Impairment Loss will not haveany impact in IT Computation

Impact on MAT Computation a grey area

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AS 29 Provisions, Contingent Liabilities andContingent Assets

Legal Vs Constructive obligation

Provision towards Asset RetirementObligation

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AS 30,31 and 32 vis--vis Tax Audit

Financial Instruments Standards

Fair valuation

Mark to Market Losses

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Changes in Accounting Policy Whether necessary to be mentioned in the Auditors

Report even if not material

Forex differences adjusted in carrying value of

fixed assets not removed for IT depreciation, ifunrealised

Related party transactions not reconciled with 40A(2) (b) disclosures

43B opening and closing unpaid position VsCurrent Liabilities


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Interest accrued on Loans Vs disclosure under 43B

Funded interest of term loans Vs 43B

Reconciling the excise duty records with financialstatement figures (CENVAT/ VAT Disclosures)

Reconciliation of movement in loan accounts withdisclosure under 269 SS and 269 T Share Application money Vs Loan IFST whether to be disclosed Security Deposits received

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TDS payable account analysis Vs Chapter XVII-BdisclosuresYear end provisions Vs during the year

payments

Non-deduction of TDS on outstanding expenses Liabilities outstanding under current liabilitiesYear end provisions on estimated basis

Reconciliation of quantitative details Raw Materials Finished goods


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Thank you

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