Subject: Tax Audit & Investigations

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TAI – Feb 2020 – L1 – Q5 – Tax Audit Engagements and Investigations

Outline audit evidence, substantive tests, and tax implications for payroll audit of Eastwood Engineering Limited.

Question

You have been assigned by the audit manager of your firm to conduct a payroll audit of Eastwood Engineering Limited, a plastic manufacturing company with a turnover of GH¢25 million. The head office sited in Abokobi includes the manufacturing unit, the accounting department and the main administration. There are a number of sales officers in different parts of the country.

The wages records are computerized, and all the wages information are processed at the head office. Some of the employees in the manufacturing unit are paid cash and all the other employees are paid directly into their bank accounts. Manufacturing employees are paid their wages a week in arrears. All other employees are paid at the end of the week.

There is also a personnel department, which is independent of the wages department. The personnel department maintains the records of the employees including the starting date, grade, current salary and date of separation.

Previous tax audit reports by Ghana Revenue Authority in accordance with Section 36 of Revenue Administration Act, 2016 (Act 915) have revealed that:
i) The company failed to deduct appropriate taxes on wages and salaries of staff especially the casual employees.
ii) Paying fictitious employees and failing to account for the payment on the payroll.
iii) Paying employees after they have left.

Due to these abnormalities detected in the earlier audits by the Ghana Revenue Authority, the audit manager has asked you do consider audit procedures you would carry out to obtain sufficient appropriate evidence of the existence of employees and to ensure that appropriate taxes have been deducted and paid to the Commissioner General of Ghana Revenue Authority.

You are required to prepare a briefing paper which should guide the audit team you are required to lead in the field in the form of a memorandum for the consideration of your audit manager outlining:
i) The audit evidence you would obtain to verify the existence of employees whose wages are paid both in cash and directly into their bank accounts.

ii) The substantive test you would carry out to verify that appropriate taxes are deducted and paid to the Commissioner General of Ghana Revenue Authority.

iii) The tax implications both now and in the future of the company’s infractions as indicated in the tax audit report.

Answer

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Tags: Audit evidence, Audit Procedures, Employee Verification, Ghana Revenue Authority, PAYE, Payroll Audit, Substantive Testing, Tax Compliance, Tax implications, Tax Penalties
Level: Level 1

Topic: Audit Practices and Procedures, Audit Review and Reporting, Tax Audit Engagements and Investigations
Series: FEB 2020

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

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

Question

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.

Answer

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Tags: Cash Transactions, Income Assessment, Revenue Inquiry, Tax Audit, Tax Compliance
Level: Level 1

Topic: Revenue Inquiry and Financial Analysis, Tax Audit Engagements and Investigations
Series: FEB 2020

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.

Question

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.

Answer

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Tags: Audit evidence, Audit Procedures, Evidence Collection, Sources, Tax Audit
Level: Level 1

Topic: Audit Procedures, Audit Review and Reporting
Series: FEB 2020

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.

Question

(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.

Answer

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Tags: Audit Planning, Audit Procedures, Audit Schedule, Tax Audit, Taxpayer Compliance
Level: Level 1

Topic: Audit Review and Reporting, Revenue Inquiry and Financial Analysis, Tax Audit Engagements and Investigations
Series: AUGUST 2020

TAI – Feb 2020 – Q1- Tax Audit Objectives

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

Question

(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.

Answer

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Tags: Audit Objectives, GRA, Tax Audit, Tax Compliance, Taxpayer Returns
Level: Level 1

Topic: Tax Audit Engagements and Investigations
Series: AUGUST 2020

TAI – Aug 2020 – L1 – Q5 – Customs and Excise Duties Valuation

Explain calculation of "value for duty purposes" for imports, locally manufactured goods, and exports.

Question

A) In relation to customs and excise duties, explain how the “value for duty purposes” is calculated on the following:

i. Imports

ii. Locally manufactured goods and services

iii. Export

(B) As part of the revenue mobilization campaign of the Ghana Revenue Authority, your firm, Messrs. Skin Pain & Co. has been contracted to carry out tax audit on the 2018 published accounts of a member of a group companies engaged in the importation of used spare parts. One of the audit teams has just returned to the office and submitted their audit file on Tom and Jerry Company Limited to you for review. The team has made the following findings:

The total IDF value of imports was $5,330,844.56, Import Duty and VAT paid were GH¢7,475,654.23 and GH¢6,546,689.04 respectively.
Total amount transferred to Okamoto Trading Corporation of Japan; the main suppliers was $9,182,250.00. This transfer included $1,237,500 allegedly transferred from the Managing Director’s own resources. The company has a ninety-day credit facility with Okamoto Trading Corporation.
Statement of account for the year ended 31/12/18 from Okamoto Trading Corporation indicated opening and closing balances as $540,690.60 and $708,732.02 respectively.
The account audited which had been filed with Ghana Revenue Authority indicated purchases of GH¢509,552.03 is local purchases from other importers.
Amount of Import Duty and VAT charged in the published accounts amounted to GH¢710,068.11 and GH¢461,544.51 respectively.
Note that import duty rate is 20%; VAT rate is 17½%; and $1.00=GH¢4.20.

You are required to:
i. Analyze the findings of the Audit Team and present a report to your Audit Manager indicating any tax implications of their findings.
ii. What further audit work would you advise the audit team to undertake on the transfer by the managing director to assure yourself that is not business income of funds belonging to the company or from a taxable source.

Answer

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Tags: Customs Duties, Excise Duties, Exports, Imports, Local Manufacturing, Tax Compliance, Valuation
Level: Level 1

Topic: Revenue Inquiry and Financial Analysis
Series: AUGUST 2020

TAI – Aug 2020 – L1 – Q4 – Audit Review and Reporting

Recommend examination procedures for reviewing God’s Time Ltd.’s profit forecast for COVID-19 financial assistance.

Question

In order to assist businesses during the COVID-19 period, the Government of Ghana has announced various packages including financial assistance to various companies and other Small and Medium Enterprises. Your firm, Prosper & Co has been approached to perform an assurance engagement for God’s Time Ltd; the engagement will be a review of prospective financial information which is needed to support the company’s application for financial assistance provided under COVID-19 facilities. God’s Time Ltd had its financial year ended 31st December each year.

The operating profit forecast for the two years to 31st December 2020 prepared by a member of the accounting team of God’s Time Ltd is shown below, along with some accompanying notes.

	Six months to 30th June 2019	Six months to 31st Dec. 2019	Six months to 30 June. 2020	Six months to 31st Dec. 2020
	GH¢	GH¢	GH¢	GH¢
Earnings	2,801,597	3,088,680	4,210,265	4,429,728
Direct costs	2,135,938	2,315,746	3,413,711	3,618,584
Gross Profit	665,659	772,934	796,554	811,144
Operating Exp.
Wages & Salaries	168,452	184,864	209,546	218,762
Advertising	13,840	20,542	28,548	31,540
Design costs	21,580	32,456	50,452	43,546
Marketing	10,896	12,458	16,520	34,450
Interest on Loan	45,543	48,620	51,654	60,542
Other Operating Exp	266,264	309,173	318,622	324,458
Net Profit	139,084	164,821	121,212	97,846

Additional Notes: i. God’s Time Ltd is a producer of greetings cards and giftware; the demand for which is seasonal in nature.

ii. Design costs are mostly payroll costs of the staff working in the company’s design team, and the costs relate to the design and development of new product ranges.

iii. The total ‘Other expenses’ is calculated based on 40% of the projected revenue for the six-month period.

iv. In 2019, the company was granted a loan facility to complete the ongoing factory project.

Required:

Recommend the examination procedures which should be used in the review of the profit forecast. (B)

You are the supervisor in-charge of the audit of Titi bidi Construction Company Limited. The audit of the company is near completion, and you are finalizing the audit report. As part of your final review, you want a confirmation that, the tax liability as reported is accurate and as such there is no liability that has not been captured.

Required:

Outline the audit steps to verify that, all tax payments and tax credits has been captured and the liability as reported is accurate.

Answer

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Tags: Assurance Engagement, Audit Procedures, COVID-19 Assistance, Financial Analysis, Ghana Revenue Authority, Profit Forecast
Level: Level 1

Topic: Audit Review and Reporting, Revenue Inquiry and Financial Analysis
Series: AUGUST 2020

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.

Question

(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.

Answer

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Tags: Audit evidence, Audit Review, Bad Debts, Debtors, Financial Analysis, Provisions, Tax Audit, Tax Compliance, VAT
Level: Level 1

Topic: Audit Review and Reporting, Tax Audits and Investigations
Series: AUGUST 2020

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

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

Question

(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.

Answer

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Tags: Audit Preparation, Compliance, Pre-contact Analysis, Tax Audit, Taxpayer File
Level: Level 1

Topic: Audit Planning and Strategy
Series: AUGUST 2020

TAI – Feb 2020 – L1 – Q5 – Tax Audit Engagements and Investigations

Outline audit evidence, substantive tests, and tax implications for payroll audit of Eastwood Engineering Limited.

Question

ii) The substantive test you would carry out to verify that appropriate taxes are deducted and paid to the Commissioner General of Ghana Revenue Authority.

iii) The tax implications both now and in the future of the company’s infractions as indicated in the tax audit report.

Answer

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Tags: Audit evidence, Audit Procedures, Employee Verification, Ghana Revenue Authority, PAYE, Payroll Audit, Substantive Testing, Tax Compliance, Tax implications, Tax Penalties
Level: Level 1

Topic: Audit Practices and Procedures, Audit Review and Reporting, Tax Audit Engagements and Investigations
Series: FEB 2020

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

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

Question

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)

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.

Answer

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Tags: Cash Transactions, Income Assessment, Revenue Inquiry, Tax Audit, Tax Compliance
Level: Level 1

Topic: Revenue Inquiry and Financial Analysis, Tax Audit Engagements and Investigations
Series: FEB 2020

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.

Question

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.

Answer

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Tags: Audit evidence, Audit Procedures, Evidence Collection, Sources, Tax Audit
Level: Level 1

Topic: Audit Procedures, Audit Review and Reporting
Series: FEB 2020

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.

Question

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)

Answer

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Tags: Audit Planning, Audit Procedures, Audit Schedule, Tax Audit, Taxpayer Compliance
Level: Level 1

Topic: Audit Review and Reporting, Revenue Inquiry and Financial Analysis, Tax Audit Engagements and Investigations
Series: AUGUST 2020

TAI – Feb 2020 – Q1- Tax Audit Objectives

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

Question

(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.

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

Yours faithfully,

Signed
GRA

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.

Answer

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Tags: Audit Objectives, GRA, Tax Audit, Tax Compliance, Taxpayer Returns
Level: Level 1

Topic: Tax Audit Engagements and Investigations
Series: AUGUST 2020

TAI – Aug 2020 – L1 – Q5 – Customs and Excise Duties Valuation

Explain calculation of "value for duty purposes" for imports, locally manufactured goods, and exports.

Question

A) In relation to customs and excise duties, explain how the “value for duty purposes” is calculated on the following:

i. Imports

ii. Locally manufactured goods and services

iii. Export

The total IDF value of imports was $5,330,844.56, Import Duty and VAT paid were GH¢7,475,654.23 and GH¢6,546,689.04 respectively.
Total amount transferred to Okamoto Trading Corporation of Japan; the main suppliers was $9,182,250.00. This transfer included $1,237,500 allegedly transferred from the Managing Director’s own resources. The company has a ninety-day credit facility with Okamoto Trading Corporation.
Statement of account for the year ended 31/12/18 from Okamoto Trading Corporation indicated opening and closing balances as $540,690.60 and $708,732.02 respectively.
The account audited which had been filed with Ghana Revenue Authority indicated purchases of GH¢509,552.03 is local purchases from other importers.
Amount of Import Duty and VAT charged in the published accounts amounted to GH¢710,068.11 and GH¢461,544.51 respectively.
Note that import duty rate is 20%; VAT rate is 17½%; and $1.00=GH¢4.20.

Answer

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Tags: Customs Duties, Excise Duties, Exports, Imports, Local Manufacturing, Tax Compliance, Valuation
Level: Level 1

Topic: Revenue Inquiry and Financial Analysis
Series: AUGUST 2020

TAI – Aug 2020 – L1 – Q4 – Audit Review and Reporting

Recommend examination procedures for reviewing God’s Time Ltd.’s profit forecast for COVID-19 financial assistance.

Question

The operating profit forecast for the two years to 31st December 2020 prepared by a member of the accounting team of God’s Time Ltd is shown below, along with some accompanying notes.

	Six months to 30th June 2019	Six months to 31st Dec. 2019	Six months to 30 June. 2020	Six months to 31st Dec. 2020
	GH¢	GH¢	GH¢	GH¢
Earnings	2,801,597	3,088,680	4,210,265	4,429,728
Direct costs	2,135,938	2,315,746	3,413,711	3,618,584
Gross Profit	665,659	772,934	796,554	811,144
Operating Exp.
Wages & Salaries	168,452	184,864	209,546	218,762
Advertising	13,840	20,542	28,548	31,540
Design costs	21,580	32,456	50,452	43,546
Marketing	10,896	12,458	16,520	34,450
Interest on Loan	45,543	48,620	51,654	60,542
Other Operating Exp	266,264	309,173	318,622	324,458
Net Profit	139,084	164,821	121,212	97,846

Additional Notes: i. God’s Time Ltd is a producer of greetings cards and giftware; the demand for which is seasonal in nature.

ii. Design costs are mostly payroll costs of the staff working in the company’s design team, and the costs relate to the design and development of new product ranges.

iii. The total ‘Other expenses’ is calculated based on 40% of the projected revenue for the six-month period.

iv. In 2019, the company was granted a loan facility to complete the ongoing factory project.

Required:

Recommend the examination procedures which should be used in the review of the profit forecast. (B)

Required:

Outline the audit steps to verify that, all tax payments and tax credits has been captured and the liability as reported is accurate.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assurance Engagement, Audit Procedures, COVID-19 Assistance, Financial Analysis, Ghana Revenue Authority, Profit Forecast
Level: Level 1

Topic: Audit Review and Reporting, Revenue Inquiry and Financial Analysis
Series: AUGUST 2020

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.

Question

(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.

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.

Answer

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Tags: Audit evidence, Audit Review, Bad Debts, Debtors, Financial Analysis, Provisions, Tax Audit, Tax Compliance, VAT
Level: Level 1

Topic: Audit Review and Reporting, Tax Audits and Investigations
Series: AUGUST 2020

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

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

Question

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.

(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.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Preparation, Compliance, Pre-contact Analysis, Tax Audit, Taxpayer File
Level: Level 1

Topic: Audit Planning and Strategy
Series: AUGUST 2020

Subject: Tax Audit & Investigations

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TAI – Feb 2020 – L1 – Q5 – Tax Audit Engagements and Investigations

Outline audit evidence, substantive tests, and tax implications for payroll audit of Eastwood Engineering Limited.

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

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

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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.

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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.

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TAI – Feb 2020 – Q1- Tax Audit Objectives

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

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TAI – Aug 2020 – L1 – Q5 – Customs and Excise Duties Valuation

Explain calculation of "value for duty purposes" for imports, locally manufactured goods, and exports.

You're reporting an error for "TAI – Aug 2020 – L1 – Q5 – Customs and Excise Duties Valuation"

TAI – Aug 2020 – L1 – Q4 – Audit Review and Reporting

Recommend examination procedures for reviewing God’s Time Ltd.’s profit forecast for COVID-19 financial assistance.

You're reporting an error for "TAI – Aug 2020 – L1 – Q4 – Audit Review and Reporting"

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.

You're reporting an error for "TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting"

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

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

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TAI – Feb 2020 – L1 – Q5 – Tax Audit Engagements and Investigations

Outline audit evidence, substantive tests, and tax implications for payroll audit of Eastwood Engineering Limited.

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

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

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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.

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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.

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TAI – Feb 2020 – Q1- Tax Audit Objectives

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

You're reporting an error for "TAI – Feb 2020 – Q1- Tax Audit Objectives"

TAI – Aug 2020 – L1 – Q5 – Customs and Excise Duties Valuation

Explain calculation of "value for duty purposes" for imports, locally manufactured goods, and exports.

You're reporting an error for "TAI – Aug 2020 – L1 – Q5 – Customs and Excise Duties Valuation"

TAI – Aug 2020 – L1 – Q4 – Audit Review and Reporting

Recommend examination procedures for reviewing God’s Time Ltd.’s profit forecast for COVID-19 financial assistance.

You're reporting an error for "TAI – Aug 2020 – L1 – Q4 – Audit Review and Reporting"

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.

You're reporting an error for "TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting"

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

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

You're reporting an error for "TAI – Aug 2020 – L1 – Q2 – Taxpayer File Review"

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