Question Tag: Tax Audit

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  • 20 Marks

TAI – Feb 2020 – L1 – Q4 – Cash Transaction Problems

Explain three problems faced by tax authorities when assessing income of businesses with high cash transactions.

a) The accurate reporting of income and expenses by cash intensive businesses has been a biggest challenge to various Revenue Authorities.

Required i. Explain briefly three potential problems encountered when assessing the income of a business with high cash transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          (b)

The Income Tax Officer, on assessing the income of Ben J for the financial years 2018-2019 feels that Ben J has not disclosed the full income. He gives you the following particulars of assets and liabilities of Ben J as of 1st January 2018 and 1st January 2019

| 1-1-2018:: | Assets: | Cash in hand | 25,500 | | | | Inventory | 56,000 | | | | Sundry debtors | 41,500 | | | | Land and Building | 190,000 | | | | Wife’s Jewlery | 75,000 | | | Liabilities: | Owing to Ben J’s Brother | 40,000 | | | | Sundry creditors | 35,000 | | 1-1-2019 | Assets | Cash in hand | 16,000 | | | | Inventory | 91,500 | | | | Sundry debtors | 52,500 | | | | Land and Building | 190,000 | | | | Motor Car | 125,000 | | | | Wife’s Jeweler | 105,000 | | | | Loan to Ben J’s Brother | 20,000 | | | Liabilities: | Sundry creditors | 55,000 |

During the two years the domestic expenditure was GHS 4,000 per month. The declared income of the financial years was GHS105,000 for 2018 and GHS123,000 for 2019 respectively.

Required: I) State whether the Income-tax Officer’s contention is correct. Explain by giving your workings. (3 marks) ii) Outline the audit steps to verify the information submitted.

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  • 20 Marks

TAI – Feb 2020 – L1 – Q3 – Audit Evidence Sources

List and explain five significant sources of audit evidence and the nature of evidence expected from each.

a) The auditor should obtain sufficient and appropriate audit evidence in order to be able to form an audit opinion.

Required: a) Enumerate five (5) significant sources of audit evidence and for each source explain briefly the nature of evidence expected.

b) What is sufficient audit evidence depends upon auditor’s judgment. Explain three matters which influence such judgment.

c) Identify and explain three situations which restrict the auditor’s ability to obtain sufficient appropriate audit evidence. Give two examples for each situation.

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  • 20 Marks

TAI – Feb 2020 – Q2- Audit Planning

Outline a plan for a tax audit of Timpani Ltd for 2015-2018, to be completed within 30 days.

(A) You have been asked to lead a team of tax auditors to audit Timpani Ltd covering the period January 2015 to December 2018. The company has its financial year end 31st December each year. The agreed date for the commencement of the audit is 3rd January 2020. You have been told that in view of the urgency required of the work, the audit report should be produced not later than 30 days after the date of commencement of the audit for the report to be sent to Commissioner-General.

Required:
As the audit supervisor, draw up an outline plan of how the audit assignment will be arranged. This will form the basis of your detailed audit work to be carried out.                                                                                                                                                                                                                                                                                                                                                                                                                                (B)

In the course of auditing the Tax Returns and records of Timpani Limited, the following observations have been made by the team and your audit manager has invited you to discuss its tax implication from both the Value Added Tax (VAT) and Direct tax point of view.

The company has multiple ‘strategic business units (SBU) located throughout the country and other West Africa countries. As part of your review of the records of (SBUs)’ you noticed the following:
i. Same components of material are purchased by different units at different prices.
ii. Marketing personnel have been offering discount/price reductions on catalogue/quoted prices beyond the authorized quantum/range, some of which were ratified subsequently.
iii. The company has written off all debts which have been outstanding for more than three years in its books. The total amount was GH¢680,000 and has also made provision for 5% on the outstanding debt of GH¢3.5 million.
iv. The company normally sends goods on sale or return basis. At the end of the year 2019, goods valued at GH¢10 millions were still in the custody of the agent and another goods worth GH¢1.5million had been returned by customers for defects. It is the policy of the company to issue VAT invoice to accompany all goods sent out to both customers and agents.

Required:
Draft a report to your audit manager covering the above observations and discuss the tax implications of these observations vis-a-vis the returns submitted by the taxpayer. Make assumptions, if necessary.

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  • 20 Marks

TAI – Feb 2020 – Q1- Tax Audit Objectives

Explain four objectives of Ghana Revenue Authority's audit of taxpayer returns and records.

(A) The Ghana Revenue Authority is empowered under the tax laws to audit, or review returns, and information submitted by taxpayers.

Required:
i) Explain briefly four (4) objectives why Ghana Revenue Authority may conduct an audit of a taxpayer’s returns and records.

ii) Mention and explain five (5) circumstances that may necessitate Ghana Revenue Authority to audit the returns and records of a taxpayer.

(B) Your firm is the external auditor of Waheed Engineering Services Limited, a listed company, which has turnover of GH 100 million. The head office site includes the manufacturing unit, the accounting functions and main administration. There are a number of sales offices in different parts of the country.

Your client has received the following letter from the Ghana Revenue Authority, Sunyani Medium Taxpayer Office.

The Managing Director,
Waheed Engineering Services Limited
Kenyasi Ahafo.
Dear Sir,
AUDIT OPERATIONS
This letter serves to introduce to you:
Awura Amma Druwaa: and
Haruna Wahab Rashid.
of the Medium Taxpayer Office, Sunyani who have been assigned to conduct audit verification into the operations of your business vis-à-vis your declaration to the Ghana Revenue Authority. We request in accordance with the Income Tax Act, 2015 (Act 896) and Value Added Tax Act 2013 (Act 870) and accompanying Regulations, you provide them with all relevant information, records and other documents to enable them to complete the assignment on time.

Yours faithfully,

Signed
GRA

Upon receipt of the letter, your client has expressed concerns that, the audit cannot proceed properly because the present condition makes it difficult for him to cooperate and as such, he requests that, the audit should be temporarily suspended. Your client has asked you to write to the Ghana Revenue Authority to that effect.

Required:
i. Discuss five (5) situations which a taxpayer can request temporarily suspension of audit.

ii. State any three (3) rights available to the taxpayer under an audit engagement other than the right to postpone audit engagement.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting

Comment on matters and audit evidence for bad debt provisions and VAT claims of Mina Macarthy Limited for 2019.

(a) You are a tax audit team leader responsible for the audit of Mina Macarthy Limited.

Mina Macarthy Limited owns a block of flats and earns its income through rentals and general dealing. On 1st January 2019, the ledger accounts of the company included the following balances.

Debtors’ account GH¢475,000

Provision for doubtful debts account GH¢ 42,235

The balance on the provision account consisted of the following: GH¢

Specific provision of 100% against the debt of Charles Sulemana, a tenant 31,500

General provision of 1% against remaining debts
12,235

During the year ended 31st December 2019, the following events occurred.

i. Charles Sulemana paid Mina Macarthy GH¢11,150 and then vanished without trace to new world, leaving no assets.

ii. Another tenant, Antonio Banderas, who owed GH¢3,900 fell into a river and was also found to have died penniless.

iii. Azuma Nickson returned from total obscurity and paid an amount of GH¢6,450 which Mina Macarthy Ltd had written off in 2017.

iv. Credit sales for the year amounted to GH¢8,167,400 and cash received from debtors (other than Sulemana and Azuma) totaled GH¢3,150,000

v. On 31st December 2019, Mina Macarthy Ltd decided to provide in full against a disputed debt of GH¢51,200 owed by Kwesi Otoo Pratt, and to maintain the 1% general provision on other debtors.

Additional notes

The company has submitted its returns for 2019 which showed a profit before tax of GH¢375,650.

Required: Comment on the matters to be considered. In addition to your comments, explain the audit evidence expected to be obtained during your review of Mina Macarthy Limited’s audit working papers prepared by the audit team member in respect of each of the issues described above.                                                                                                                                                                                                                                                                                                                                                                                                                             (bi)

In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

i. Explain how a bad debt may arise for VAT.

(bii) In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

ii. Explain the circumstances under which a bad debt relief can be claimed.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q2 – Taxpayer File Review

Explain six key reasons for reviewing a taxpayer’s file before a field audit.

(A) The tax auditor’s initial objective in pre-contact analysis is to collect relevant background materials and information to build a general picture of the taxpayer and its operations. Preparing for and obtaining the essential information about the taxpayer ensure that the audit is conducted efficiently and effectively.

Required: Enumerate and discuss six (6) key reasons why taxpayer’s file is reviewed prior to the field audit?

(B) Information from prior audit report and file may assist the auditor in his or her current exercise.

Required: Clearly outline and discuss any four (4) reasons why it is important to review the previous audit report or contact the previous tax auditor when preparing to undertake a current audit assignment.

(C) In the course of a tax audit, certain critical information on the audit should be communicated to the audit supervisor or manager as soon as the tax auditor took notice of them.

Required: Mention six (6) of such information that may require such action.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q1 – Tax Audit Roles

Explain five roles of the tax audit and investigation program in Ghana's tax administration.

(A) The audit program of Ghana Revenue Authority performs a number of important roles that, if effectively carried out, can make a significant contribution to improve administration of the tax system in the country.

Required: Explain five roles tax audit and investigation program performs in the tax administration of Ghana.                                                                                                                                                                                                                                                                                   (B)

The efficiency and effectiveness of Ghana Revenue Authority’s audit activities depend mainly on the nature and scope of powers in the underlying legal framework in place. Among such powers includes the provision of adequate powers for obtaining information and an appropriate regime of sanctions to deter and penalize non-compliance.

Required: State and briefly describe five (5) key elements of legal framework relating to the tax audit function of Ghana Revenue Authority as under the tax laws and administration of Ghana.

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  • 12 Marks

AT – Nov 2024 – L3 – Q3a – Tax Planning and Objection to Tax Assessment

Advise Poyooyo LTD on provisions in tax laws to challenge a disputed tax liability.

The Directors of Poyooyo LTD have heard of the Maxims of Tax Planning, which outline strategies for minimizing tax liabilities legally.

In a recent visit by the Domestic Tax Revenue Division of the Ghana Revenue Authority (GRA), the Large Taxpayers Office (LTO) in Accra conducted a tax audit on the company, resulting in tax assessments raised against Poyooyo LTD for settlement.

Management of the company, in their last meeting with the directors, presented the outcome of the tax audit and strongly argued that the assessment was erroneous. They claimed that the liabilities raised were based on legitimate tax planning strategies the company employed.

They believe that the company is in full compliance with the tax laws and should not be required to settle the tax liabilities assessed. However, payment of the liability would significantly impact the company’s cash flow and disrupt its operations.

Poyooyo LTD has approached your tax consulting firm for assistance and guidance.

Required:

Advise Poyooyo LTD on the provisions of the tax laws that could be taken advantage of to avert the payment of the liability.

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  • 5 Marks

PT – Nov 2024 – L2 – Q2e – Tax Audit and Under-declaration of Sales

Action to be taken regarding an under-declared sales revenue during a tax audit.

You have been engaged as an Accounts Officer in Abokobi LTD. Sales of GH¢10,000,000 were inadvertently under-declared. A team from the Ghana Revenue Authority (GRA) is at your premises conducting an audit. The GRA Audit Team did not review the sales revenue. After the audit, you noted that the amount constituting the under-declaration of the sales was mistakenly credited to the suppliers’ account in the ledger.

Required:

Detail out your position on the above as to what action to take.

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  • 15 Marks

AT – May 2016 – L3 – Q6 – Tax Audits and Investigations

Define tax avoidance and evasion, outline the differences, and explain key stages and objectives of a tax audit.

YASSAR LIMITED imports baby wears and has been in business for some years now. The company is doing very well, and the Directors are impressed with the growth. The company’s Managing Director, Chief Agbaegonkiti, is a member of Enugu Sports Club. On January 14, 2015, after the morning aerobics in the club’s gym, a friend of Chief Agbaegonkiti, who is also the Finance Director of a trading outfit, narrated how the company he works for was subjected to a Tax Audit by the Federal Inland Revenue Service (FIRS), which resulted in payment of additional tax liabilities totaling N10.5 million.

The Finance Director attributed their company’s ordeal to the Board’s poor understanding of key tax-related issues. Chief Agbaegonkiti, after listening to his friend, was highly worried about such a fate befalling his company. As a proactive move, he enquired for seasoned tax practitioners, and your firm, Cutting-Edge & Co, Chartered Accountants, was referred to him.

As the Managing Partner, you are to take action and address the following:

REQUIRED:

a. Briefly explain what you understand by the terms Tax Avoidance and Tax Evasion. (2 marks)

b. State FIVE differences between Tax Avoidance and Tax Evasion. (5 marks)

c. Outline the key stages in the Tax Audit process. (3 marks)

d. State SIX objectives of a Tax Audit exercise. (5 marks)

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  • 20 Marks

TAI – Feb 2020 – L1 – Q4 – Cash Transaction Problems

Explain three problems faced by tax authorities when assessing income of businesses with high cash transactions.

a) The accurate reporting of income and expenses by cash intensive businesses has been a biggest challenge to various Revenue Authorities.

Required i. Explain briefly three potential problems encountered when assessing the income of a business with high cash transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          (b)

The Income Tax Officer, on assessing the income of Ben J for the financial years 2018-2019 feels that Ben J has not disclosed the full income. He gives you the following particulars of assets and liabilities of Ben J as of 1st January 2018 and 1st January 2019

| 1-1-2018:: | Assets: | Cash in hand | 25,500 | | | | Inventory | 56,000 | | | | Sundry debtors | 41,500 | | | | Land and Building | 190,000 | | | | Wife’s Jewlery | 75,000 | | | Liabilities: | Owing to Ben J’s Brother | 40,000 | | | | Sundry creditors | 35,000 | | 1-1-2019 | Assets | Cash in hand | 16,000 | | | | Inventory | 91,500 | | | | Sundry debtors | 52,500 | | | | Land and Building | 190,000 | | | | Motor Car | 125,000 | | | | Wife’s Jeweler | 105,000 | | | | Loan to Ben J’s Brother | 20,000 | | | Liabilities: | Sundry creditors | 55,000 |

During the two years the domestic expenditure was GHS 4,000 per month. The declared income of the financial years was GHS105,000 for 2018 and GHS123,000 for 2019 respectively.

Required: I) State whether the Income-tax Officer’s contention is correct. Explain by giving your workings. (3 marks) ii) Outline the audit steps to verify the information submitted.

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  • 20 Marks

TAI – Feb 2020 – L1 – Q3 – Audit Evidence Sources

List and explain five significant sources of audit evidence and the nature of evidence expected from each.

a) The auditor should obtain sufficient and appropriate audit evidence in order to be able to form an audit opinion.

Required: a) Enumerate five (5) significant sources of audit evidence and for each source explain briefly the nature of evidence expected.

b) What is sufficient audit evidence depends upon auditor’s judgment. Explain three matters which influence such judgment.

c) Identify and explain three situations which restrict the auditor’s ability to obtain sufficient appropriate audit evidence. Give two examples for each situation.

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  • 20 Marks

TAI – Feb 2020 – Q2- Audit Planning

Outline a plan for a tax audit of Timpani Ltd for 2015-2018, to be completed within 30 days.

(A) You have been asked to lead a team of tax auditors to audit Timpani Ltd covering the period January 2015 to December 2018. The company has its financial year end 31st December each year. The agreed date for the commencement of the audit is 3rd January 2020. You have been told that in view of the urgency required of the work, the audit report should be produced not later than 30 days after the date of commencement of the audit for the report to be sent to Commissioner-General.

Required:
As the audit supervisor, draw up an outline plan of how the audit assignment will be arranged. This will form the basis of your detailed audit work to be carried out.                                                                                                                                                                                                                                                                                                                                                                                                                                (B)

In the course of auditing the Tax Returns and records of Timpani Limited, the following observations have been made by the team and your audit manager has invited you to discuss its tax implication from both the Value Added Tax (VAT) and Direct tax point of view.

The company has multiple ‘strategic business units (SBU) located throughout the country and other West Africa countries. As part of your review of the records of (SBUs)’ you noticed the following:
i. Same components of material are purchased by different units at different prices.
ii. Marketing personnel have been offering discount/price reductions on catalogue/quoted prices beyond the authorized quantum/range, some of which were ratified subsequently.
iii. The company has written off all debts which have been outstanding for more than three years in its books. The total amount was GH¢680,000 and has also made provision for 5% on the outstanding debt of GH¢3.5 million.
iv. The company normally sends goods on sale or return basis. At the end of the year 2019, goods valued at GH¢10 millions were still in the custody of the agent and another goods worth GH¢1.5million had been returned by customers for defects. It is the policy of the company to issue VAT invoice to accompany all goods sent out to both customers and agents.

Required:
Draft a report to your audit manager covering the above observations and discuss the tax implications of these observations vis-a-vis the returns submitted by the taxpayer. Make assumptions, if necessary.

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  • 20 Marks

TAI – Feb 2020 – Q1- Tax Audit Objectives

Explain four objectives of Ghana Revenue Authority's audit of taxpayer returns and records.

(A) The Ghana Revenue Authority is empowered under the tax laws to audit, or review returns, and information submitted by taxpayers.

Required:
i) Explain briefly four (4) objectives why Ghana Revenue Authority may conduct an audit of a taxpayer’s returns and records.

ii) Mention and explain five (5) circumstances that may necessitate Ghana Revenue Authority to audit the returns and records of a taxpayer.

(B) Your firm is the external auditor of Waheed Engineering Services Limited, a listed company, which has turnover of GH 100 million. The head office site includes the manufacturing unit, the accounting functions and main administration. There are a number of sales offices in different parts of the country.

Your client has received the following letter from the Ghana Revenue Authority, Sunyani Medium Taxpayer Office.

The Managing Director,
Waheed Engineering Services Limited
Kenyasi Ahafo.
Dear Sir,
AUDIT OPERATIONS
This letter serves to introduce to you:
Awura Amma Druwaa: and
Haruna Wahab Rashid.
of the Medium Taxpayer Office, Sunyani who have been assigned to conduct audit verification into the operations of your business vis-à-vis your declaration to the Ghana Revenue Authority. We request in accordance with the Income Tax Act, 2015 (Act 896) and Value Added Tax Act 2013 (Act 870) and accompanying Regulations, you provide them with all relevant information, records and other documents to enable them to complete the assignment on time.

Yours faithfully,

Signed
GRA

Upon receipt of the letter, your client has expressed concerns that, the audit cannot proceed properly because the present condition makes it difficult for him to cooperate and as such, he requests that, the audit should be temporarily suspended. Your client has asked you to write to the Ghana Revenue Authority to that effect.

Required:
i. Discuss five (5) situations which a taxpayer can request temporarily suspension of audit.

ii. State any three (3) rights available to the taxpayer under an audit engagement other than the right to postpone audit engagement.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting

Comment on matters and audit evidence for bad debt provisions and VAT claims of Mina Macarthy Limited for 2019.

(a) You are a tax audit team leader responsible for the audit of Mina Macarthy Limited.

Mina Macarthy Limited owns a block of flats and earns its income through rentals and general dealing. On 1st January 2019, the ledger accounts of the company included the following balances.

Debtors’ account GH¢475,000

Provision for doubtful debts account GH¢ 42,235

The balance on the provision account consisted of the following: GH¢

Specific provision of 100% against the debt of Charles Sulemana, a tenant 31,500

General provision of 1% against remaining debts
12,235

During the year ended 31st December 2019, the following events occurred.

i. Charles Sulemana paid Mina Macarthy GH¢11,150 and then vanished without trace to new world, leaving no assets.

ii. Another tenant, Antonio Banderas, who owed GH¢3,900 fell into a river and was also found to have died penniless.

iii. Azuma Nickson returned from total obscurity and paid an amount of GH¢6,450 which Mina Macarthy Ltd had written off in 2017.

iv. Credit sales for the year amounted to GH¢8,167,400 and cash received from debtors (other than Sulemana and Azuma) totaled GH¢3,150,000

v. On 31st December 2019, Mina Macarthy Ltd decided to provide in full against a disputed debt of GH¢51,200 owed by Kwesi Otoo Pratt, and to maintain the 1% general provision on other debtors.

Additional notes

The company has submitted its returns for 2019 which showed a profit before tax of GH¢375,650.

Required: Comment on the matters to be considered. In addition to your comments, explain the audit evidence expected to be obtained during your review of Mina Macarthy Limited’s audit working papers prepared by the audit team member in respect of each of the issues described above.                                                                                                                                                                                                                                                                                                                                                                                                                             (bi)

In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

i. Explain how a bad debt may arise for VAT.

(bii) In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

ii. Explain the circumstances under which a bad debt relief can be claimed.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q2 – Taxpayer File Review

Explain six key reasons for reviewing a taxpayer’s file before a field audit.

(A) The tax auditor’s initial objective in pre-contact analysis is to collect relevant background materials and information to build a general picture of the taxpayer and its operations. Preparing for and obtaining the essential information about the taxpayer ensure that the audit is conducted efficiently and effectively.

Required: Enumerate and discuss six (6) key reasons why taxpayer’s file is reviewed prior to the field audit?

(B) Information from prior audit report and file may assist the auditor in his or her current exercise.

Required: Clearly outline and discuss any four (4) reasons why it is important to review the previous audit report or contact the previous tax auditor when preparing to undertake a current audit assignment.

(C) In the course of a tax audit, certain critical information on the audit should be communicated to the audit supervisor or manager as soon as the tax auditor took notice of them.

Required: Mention six (6) of such information that may require such action.

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  • 20 Marks

TAI – Aug 2020 – L1 – Q1 – Tax Audit Roles

Explain five roles of the tax audit and investigation program in Ghana's tax administration.

(A) The audit program of Ghana Revenue Authority performs a number of important roles that, if effectively carried out, can make a significant contribution to improve administration of the tax system in the country.

Required: Explain five roles tax audit and investigation program performs in the tax administration of Ghana.                                                                                                                                                                                                                                                                                   (B)

The efficiency and effectiveness of Ghana Revenue Authority’s audit activities depend mainly on the nature and scope of powers in the underlying legal framework in place. Among such powers includes the provision of adequate powers for obtaining information and an appropriate regime of sanctions to deter and penalize non-compliance.

Required: State and briefly describe five (5) key elements of legal framework relating to the tax audit function of Ghana Revenue Authority as under the tax laws and administration of Ghana.

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  • 12 Marks

AT – Nov 2024 – L3 – Q3a – Tax Planning and Objection to Tax Assessment

Advise Poyooyo LTD on provisions in tax laws to challenge a disputed tax liability.

The Directors of Poyooyo LTD have heard of the Maxims of Tax Planning, which outline strategies for minimizing tax liabilities legally.

In a recent visit by the Domestic Tax Revenue Division of the Ghana Revenue Authority (GRA), the Large Taxpayers Office (LTO) in Accra conducted a tax audit on the company, resulting in tax assessments raised against Poyooyo LTD for settlement.

Management of the company, in their last meeting with the directors, presented the outcome of the tax audit and strongly argued that the assessment was erroneous. They claimed that the liabilities raised were based on legitimate tax planning strategies the company employed.

They believe that the company is in full compliance with the tax laws and should not be required to settle the tax liabilities assessed. However, payment of the liability would significantly impact the company’s cash flow and disrupt its operations.

Poyooyo LTD has approached your tax consulting firm for assistance and guidance.

Required:

Advise Poyooyo LTD on the provisions of the tax laws that could be taken advantage of to avert the payment of the liability.

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  • 5 Marks

PT – Nov 2024 – L2 – Q2e – Tax Audit and Under-declaration of Sales

Action to be taken regarding an under-declared sales revenue during a tax audit.

You have been engaged as an Accounts Officer in Abokobi LTD. Sales of GH¢10,000,000 were inadvertently under-declared. A team from the Ghana Revenue Authority (GRA) is at your premises conducting an audit. The GRA Audit Team did not review the sales revenue. After the audit, you noted that the amount constituting the under-declaration of the sales was mistakenly credited to the suppliers’ account in the ledger.

Required:

Detail out your position on the above as to what action to take.

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  • 15 Marks

AT – May 2016 – L3 – Q6 – Tax Audits and Investigations

Define tax avoidance and evasion, outline the differences, and explain key stages and objectives of a tax audit.

YASSAR LIMITED imports baby wears and has been in business for some years now. The company is doing very well, and the Directors are impressed with the growth. The company’s Managing Director, Chief Agbaegonkiti, is a member of Enugu Sports Club. On January 14, 2015, after the morning aerobics in the club’s gym, a friend of Chief Agbaegonkiti, who is also the Finance Director of a trading outfit, narrated how the company he works for was subjected to a Tax Audit by the Federal Inland Revenue Service (FIRS), which resulted in payment of additional tax liabilities totaling N10.5 million.

The Finance Director attributed their company’s ordeal to the Board’s poor understanding of key tax-related issues. Chief Agbaegonkiti, after listening to his friend, was highly worried about such a fate befalling his company. As a proactive move, he enquired for seasoned tax practitioners, and your firm, Cutting-Edge & Co, Chartered Accountants, was referred to him.

As the Managing Partner, you are to take action and address the following:

REQUIRED:

a. Briefly explain what you understand by the terms Tax Avoidance and Tax Evasion. (2 marks)

b. State FIVE differences between Tax Avoidance and Tax Evasion. (5 marks)

c. Outline the key stages in the Tax Audit process. (3 marks)

d. State SIX objectives of a Tax Audit exercise. (5 marks)

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