Tax Audits and Investigations

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

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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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.

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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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.

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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"

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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