Tax Audits and Investigations

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

Find Related Questions by Tags, levels, etc.

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 – Q1 – Tax Audit Roles

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

Question

(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.

Answer

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Tags: Ghana Revenue Authority, Revenue Collection, Tax Administration, Tax Audit, Voluntary Compliance
Level: Level 1

Topic: Tax Audits and Investigations
Series: AUGUST 2020

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.

Question

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)

Answer

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Tags: Tax Audit, Tax avoidance, Tax Evasion, Tax Exercise, Tax Practitioners
Level: Level 3

Topic: Tax Audits and Investigations

TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations

Required to prepare tax documentation and compute liabilities for BICCI Nigeria Limited in response to FIRS tax audit report.

Question

You have been invited to make a presentation to the Board of Directors of BICCI Nigeria Limited. Your performance at the presentation will determine your appointment as the Tax Consultant to the company.

BICCI Nigeria Limited, a trading company, was incorporated on 2 March 2009. It commenced business on 2 October of the same year, making accounts up to 30 September annually. The shareholders invested N18 million in non-current assets before the company commenced business in 2009.

Other information provided:

Authorized, Issued, and Fully Paid-Up Capital – N10 million.
Value Added Tax (VAT) and Withholding Tax (WHT) returns filed for 2010–2013 were carried out 2 months after each transaction month.
Companies Income Tax (CIT) and Tertiary Education Tax (TET) returns were filed on 30 June for the 2011 to 2014 Assessment Years.

Extracts from the accounts (2010–2013):

On 15 July 2014, FIRS inspectors visited BICCI, informing management of an upcoming tax audit on 25 August 2014. They requested the following documents:

Audited Accounts (2010–2013)
Bank Statements (2010–2013)
Trial Balance for each year
Evidence of Tax Returns filed (CIT, VAT, WHT, TET)
General Ledger printouts
Proof of tax payments
Tax registration evidence
Tax Clearance Certificates
WHT Credit Notes, if any

FIRS Interim Tax Audit Report (summarized):

Item	2013	2012	2011	2010
Revenue (N’000)	25,320	21,522	13,989	7,694
VAT on Revenue	8,862	7,533	4,896	3,462
Undisclosed Revenue	16,458	13,989	9,093	4,232
Directors’ Current Account	19,578	21,228	19,250	18,000
Payments under WHT:
– Directors’ Fees	1,625	2,125	1,145	960
– Rent	3,500	3,500	2,625	2,625
– Professional Fees	1,200	1,200	950	950
– Commission	2,825	1,875	970	376

Additional Adjustments:

Cost of Sales written back: 60%
Selling & Distribution expenses written back: 60%
Admin expenses written back: 60%

Requirements:

a. List the documents required by FIRS for the Interim Tax Audit. (3 Marks)
b. Calculate BICCI Nigeria Limited’s potential tax liabilities per the Interim Tax Audit. (12 Marks)
c. Prepare a schedule for VAT and WHT receipts collected by BICCI. (7 Marks)
d. Advise management on possible tax consequences if they do not respond to the audit. (8 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Compliance, Deferred Tax, Financial Statements, Tax Audit, Tax Liability, VAT, WHT
Level: Level 2

Topic: Tax Audits and Investigations
Series: MAY 2015

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

Find Related Questions by Tags, levels, etc.

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 – Q1 – Tax Audit Roles

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

Question

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

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.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Ghana Revenue Authority, Revenue Collection, Tax Administration, Tax Audit, Voluntary Compliance
Level: Level 1

Topic: Tax Audits and Investigations
Series: AUGUST 2020

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.

Question

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Tax Audit, Tax avoidance, Tax Evasion, Tax Exercise, Tax Practitioners
Level: Level 3

Topic: Tax Audits and Investigations

TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations

Required to prepare tax documentation and compute liabilities for BICCI Nigeria Limited in response to FIRS tax audit report.

Question

Other information provided:

Authorized, Issued, and Fully Paid-Up Capital – N10 million.
Value Added Tax (VAT) and Withholding Tax (WHT) returns filed for 2010–2013 were carried out 2 months after each transaction month.
Companies Income Tax (CIT) and Tertiary Education Tax (TET) returns were filed on 30 June for the 2011 to 2014 Assessment Years.

Extracts from the accounts (2010–2013):

On 15 July 2014, FIRS inspectors visited BICCI, informing management of an upcoming tax audit on 25 August 2014. They requested the following documents:

Audited Accounts (2010–2013)
Bank Statements (2010–2013)
Trial Balance for each year
Evidence of Tax Returns filed (CIT, VAT, WHT, TET)
General Ledger printouts
Proof of tax payments
Tax registration evidence
Tax Clearance Certificates
WHT Credit Notes, if any

FIRS Interim Tax Audit Report (summarized):

Item	2013	2012	2011	2010
Revenue (N’000)	25,320	21,522	13,989	7,694
VAT on Revenue	8,862	7,533	4,896	3,462
Undisclosed Revenue	16,458	13,989	9,093	4,232
Directors’ Current Account	19,578	21,228	19,250	18,000
Payments under WHT:
– Directors’ Fees	1,625	2,125	1,145	960
– Rent	3,500	3,500	2,625	2,625
– Professional Fees	1,200	1,200	950	950
– Commission	2,825	1,875	970	376

Additional Adjustments:

Cost of Sales written back: 60%
Selling & Distribution expenses written back: 60%
Admin expenses written back: 60%

Requirements:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Compliance, Deferred Tax, Financial Statements, Tax Audit, Tax Liability, VAT, WHT
Level: Level 2

Topic: Tax Audits and Investigations
Series: MAY 2015

Topic: Tax Audits and Investigations

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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.

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

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

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.

TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations

Required to prepare tax documentation and compute liabilities for BICCI Nigeria Limited in response to FIRS tax audit report.

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.

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

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

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.

TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations

Required to prepare tax documentation and compute liabilities for BICCI Nigeria Limited in response to FIRS tax audit report.

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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.

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

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

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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.

You're reporting an error for "AT – May 2016 – L3 – Q6 – Tax Audits and Investigations"

TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations

Required to prepare tax documentation and compute liabilities for BICCI Nigeria Limited in response to FIRS tax audit report.

You're reporting an error for "TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations"

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 – Q1 – Tax Audit Roles

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

You're reporting an error for "TAI – Aug 2020 – L1 – Q1 – Tax Audit Roles"

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.

You're reporting an error for "AT – May 2016 – L3 – Q6 – Tax Audits and Investigations"

TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations

Required to prepare tax documentation and compute liabilities for BICCI Nigeria Limited in response to FIRS tax audit report.

You're reporting an error for "TAX – May 2015 – L2 – SA – Q1 – Tax Audits and Investigations"

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