Types of Audit – Tax Audit

A tax audit refers to the official examination of the tax return that the taxpayers declare by the tax department in compliance with the requirement of law. This is another type of important audit apart from the financial statement audit that the audit firms in Johor Bahru usually perform. As the countries and the jurisdictions vary, the requirements and laws may differ. This leads to a difference in the processes of the tax audit.

Generally, taxpayers need to declare their tax return monthly or yearly to the tax department. Yet, although the taxpayers have done so, it does not prove that they have completed their duties. The tax department may demand the taxpayers to let the tax officers review their documents (Also see How Does Business Maintain Tax Records?). Also, the tax department should notify the taxpayers before it requests them for additional clarification and documents or visits their office.

There are numerous types of tax returns, and the terms that each country is using may be different from one another. Listed below are some types of tax audits.

Mail Audit

This type of tax audit is rather simple, where the tax officer will notify and ask the taxpayer to provide extra clarification or documents on particular deductions or declarations of the tax return. As an instance, a firm declares to deduct charity expenses (Also see Categorisation of Costs) which are subjected to tax deduction.

In some occasions, the tax officers may suspect that something in a company’s tax deduction may go wrong after reviewing it. Hence, they probably will ask for extra clarification or documents to ensure that the firm has taken the deduction into account correctly. If they find the explanation or documents reliable, they will not take further actions. Conversely, if they are unsatisfied, they would perform other audits or procedures (Also see What is Substantive Audit Approach?) such as field audit or office audit. This indicates that the individual may have to explain to the tax officers face-to-face, or the tax officers will visit his or her own home or workplace.

Office Audit

An office audit is an additional procedure for the mail audit. It requires an individual to pay a visit to the local tax department.

If the tax officers invite an individual to visit the tax department, he needs to bring along extra documents and get ready for the questions from the officers. As the individual has just got the mail audit, he will know what the officers want.  Before he visits them, he needs to ensure that he has got all the required documents and information ready. Also, he may ask an accountant or a lawyer to accompany him.

Field Audit

Such an audit is an in-depth audit from the tax department where the tax officers will assess the documents of an individual and question him on-site. This happens yearly or only when the tax department found the individual’s declaration suspicious. If he has no experience in dealing with such an audit, he may seek help from a tax agent (Also see What to Expect from Your Tax Agent?).