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GST Audit

GST Audit. -CA. Yash Parmar Partner, Gabhawalla & Co. Baroda Branch of WIRC. GST Audit- Steps & Timelines. Understanding the Auditee/Checklist. Introduction Outward Supplies Inward Supplies Input Tax Credit Forced Errors Procedural Aspects. Introduction (1/2). Introduction (2/2).

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GST Audit

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  1. GST Audit -CA. Yash Parmar Partner, Gabhawalla & Co. Baroda Branch of WIRC

  2. GST Audit- Steps & Timelines S. B. Gabhawalla & Co.

  3. Understanding the Auditee/Checklist Introduction Outward Supplies Inward Supplies Input Tax Credit Forced Errors Procedural Aspects S. B. Gabhawalla & Co.

  4. Introduction (1/2) S. B. Gabhawalla & Co.

  5. Introduction (2/2) S. B. Gabhawalla & Co.

  6. Outward Supplies (1/4) S. B. Gabhawalla & Co.

  7. Outward Supplies (2/4) S. B. Gabhawalla & Co.

  8. Outward Supplies (3/4) S. B. Gabhawalla & Co.

  9. Outward Supplies (4/4) S. B. Gabhawalla & Co.

  10. Inward Supplies (1/2) S. B. Gabhawalla & Co.

  11. Inward Supplies (2/2) S. B. Gabhawalla & Co.

  12. Input Tax Credit (1/2) S. B. Gabhawalla & Co.

  13. Input Tax Credit (2/2) S. B. Gabhawalla & Co.

  14. Forced Errors & Procedural Aspects S. B. Gabhawalla & Co.

  15. Initial Documentation S. B. Gabhawalla & Co.

  16. Documents (1/5) S. B. Gabhawalla & Co.

  17. Documents (2/5) S. B. Gabhawalla & Co.

  18. Documents (3/5) S. B. Gabhawalla & Co.

  19. Documents (4/5) S. B. Gabhawalla & Co.

  20. Documents (5/5) S. B. Gabhawalla & Co.

  21. Form GSTR 9C

  22. GSTR 9C- Overview Part A- Reconciliation Statement Part B- Certification S. B. Gabhawalla & Co.

  23. GST Audit Report : Format (Part B) • Format I • Certification in cases where the reconciliation statement is drawn up by the person who had conducted the audit • Format II • Certification in cases where the reconciliation statement is drawn up by a person other than the person who had conducted the audit S. B. Gabhawalla & Co.

  24. Issue… Format I Format II Format II No Audit Under following circumstances, which format is ABC & Co, a CA firm suppose to use while conducting GST Audit of XYZ Ltd.? ABC & Co. has conducted Statutory Audit of XYZ Ltd. ABC & Co. has conducted Tax Audit of XYZ Ltd. ABC & Co. has conducted Cost Audit of XYZ Ltd. ABC & Co. is Internal Auditor of XYZ Ltd. S. B. Gabhawalla & Co.

  25. Issue… Format I Format II No Audit S. B. Gabhawalla & Co. Under following circumstances, which format is ABC & Co, a CA firm suppose to use while conducting GST Audit of XYZ, a proprietary concern? ABC & Co. has conducted Tax Audit of XYZ ABC & Co. has conducted Cost Audit of XYZ ABC & Co. is Internal Auditor of XYZ

  26. Issue… Format I Format II XYZ, a proprietary concern is following cash system of accounting. The turnover is below the prescribed limits for getting books audited under Income Tax Act. However, for GST Audit purposes, the turnover is exceeding the prescribed limit. How should ABC & Co., a CA firm proceed for GST Audit & which format to adopt? Audit under GAAP by ABC & Co. Audit under GAAP by other CA firm S. B. Gabhawalla & Co.

  27. Comparison of Formats S. B. Gabhawalla & Co.

  28. Comparison with Tax Audit S. B. Gabhawalla & Co.

  29. Clause-by-Clause analysis of GSTR 9C Instructions Issues Technical Guide S. B. Gabhawalla & Co.

  30. Over-view of GSTR 9C (Part A) S. B. Gabhawalla & Co.

  31. Pt. II- 5A- Turnover Clause 5A: Turnover (including exports) as per audited financial statements for the State / UT (For multi-GSTIN units under same PAN the turnover shall be derived from the audited Annual Financial Statement) Instructions: The turnover as per the audited Annual Financial Statement shall be declared here. There may be cases where multiple GSTINs (State-wise) registrations exist on the same PAN. This is common for persons / entities with presence over multiple States. Such persons / entities, will have to internally derive their GSTIN wise turnover and declare the same here. This shall include export turnover (if any). It may be noted that reference to audited Annual Financial Statement includes reference to books of accounts in case of persons / entities having presence over multiple States. S. B. Gabhawalla & Co.

  32. Issue 1: (Clause 5A) XYZ Ltd. has presence in 3 states with break-down of turnover as under: Maharashtra- Rs. 75 lacs Gujarat- Rs. 1 Crore Delhi- Rs. 3 Crores XYZ Ltd. needs to get his books audited only in Delhi or in all the 3 states? S. B. Gabhawalla & Co.

  33. Statutory Provisions Section 44(2) of CGST Act, 2017: Every registered person who is required to get his accounts audited in accordance with the provisions of section 35(5), shall furnish annual return as per section 44(1) alongwith a copy of audited annual accounts and a reconciliation statement Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant and shall submit a copy of audited accounts, the reconciliation statement u/s. 44(2) and such other documents in such form and manner as may be prescribed Rule 80(3)- Reconciliation statement in form GSTR 9C if aggregate turnover exceeds Rs. 2 Crores in a financial year S. B. Gabhawalla & Co.

  34. Turnover… Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant and shall submit a copy of audited accounts, the reconciliation statement u/s. 44(2) and such other documents in such form and manner as may be prescribed Turnover- Not defined in the Act Aggregate Turnover- Section 2(6)- PAN India Turnover Turnover in State- Section 2(112)- Turnover within the State Every registered person to be read qua the Company or qua the distinct persons? Rule 80(3) talks of Aggregate Turnover- Can rule override section? S. B. Gabhawalla & Co.

  35. Issue 2: (Clause 5A) ABC Ltd. for the period April 2017 to March 2018 has following turnover: April to June 2017- Rs. 75,00,000 July to March 2018- Rs. 1,50,00,000 Total- Rs. 2,25,00,000 Whether ABC Ltd. is required to get GST Audit done? S. B. Gabhawalla & Co.

  36. ICAI- Technical Guide (Pg. 4) For the financial year 2017-18, the GST period comprises of 9 months whereas the relevant section 35(5) uses the expression financial year. Therefore, in the absence of clarification from government, also to avoid any cases of default, it is reasonable to understand that to reckon the turnover limits prescribed for audit i.e., Rs. 2 crores one has to reckon the turnovers for the whole of the financial year which would also include the first quarter of the financial year 2017-18. However, if taxpayer were to take a view that the threshold of Rs. 2 Crore ought to consider transaction for 9 months since implementation of GST is from 1 July, 2017, suitable disclosure or intimation to the jurisdictional officer in writing, would be merited. S. B. Gabhawalla & Co.

  37. Issue 3: (Clause 5A) Facts of the Case: Turnover of A Ltd. is Rs. 250 crores PAN India. You are appointed GST Auditor only for the state of Maharashtra and as per the State PL of Maharashtra, the turnover of Maharashtra is Rs. 30 crores Issues to discuss: Whether the auditor should insist on audited/certified State PL from Statutory Auditor for the 9 months period or MRL will do? What is the responsibility of the auditor to ensure that the balance Rs. 220 crores is reported in other States? What would happen if through genuine error, a turnover of Rs. 1 crore attributable to Maharashtra is wrongly reported in some other State? S. B. Gabhawalla & Co.

  38. ICAI- Technical Guide (Pg. 23) It is possible that different Auditors are appointed for certifying GSTR 9C for different registrations of the entity. As multiple Auditors are involved in certification of the GSTR 9C, the Registered Person and every Auditor must ensure that the turnovers’ declared by different Auditors must reconcile and add-up to the total turnover of the entity as per the audited financial statements. Drawing analogy from SA 299 on “Responsibility of Joint Auditors”, an Auditor must communicate with the other Auditors to obtain details of turnover declared by him to ensure that the various turnovers declared by them. Alternatively, a suitable management representation may be obtained from the entity that such turnovers declared by different Registered Persons aggregate to the audited financial statements. Such an exercise would also be required where multiple registrations are obtained within the same State / UT for different business verticals. S. B. Gabhawalla & Co.

  39. Issue 4: (Clause 5A) S. B. Gabhawalla & Co. Whether turnover at Clause 5A will include the following? Other Income reported in credit side of P&L Expense Recoveries on which tax is paid (reflected as reduction in debit side of P&L) Sale of Assets (partially reflected as reduction in Fixed Asset Schedule and partially as profit in P&L)

  40. ICAI- Technical Guide (Pg. 22) While considering the turnover from the audited financial statements, the Auditor is also required to include indirect income in the form of dividend, interest, forex fluctuation, profit on sale of asset etc. Any amount of return supplies credited to purchase or expenditure account would not be considered for the purpose of arriving at the turnover under Sl. No. 5A. Such adjustment has been separately dealt with under appropriate Sl. No. in this Part. S. B. Gabhawalla & Co.

  41. Issue 5: (Clause 5A) S. B. Gabhawalla & Co. How to disclose turnover in cases where turnover has no correlation with GST Liability? Cash System of Accounting Builders and Developers Commission Agents

  42. ICAI- Technical Guide (Pg. 22) Turnover to be declared under this Sl. No. must flow from the ‘audited financial statements’ even if such turnover consists of adjustments/ revenue recognition on account of a requirement of an Accounting Standard (E.g.: AS 7 in case of ‘Construction Contracts’). It cannot and must not include “Deemed supplies under Schedule I” as Sl. No. 5D separately covers such adjustments. S. B. Gabhawalla & Co.

  43. Pt II- 5B & 5H- Unbilled Revenue • Clause 5B Unbilled revenue at the beginning of Financial Year (+) • Clause 5H Unbilled revenue at the end of Financial Year (-) • Instructions: • Unbilled revenue which was recorded in the books of accounts on the basis of accrual system of accounting in the last financial year and was carried forward to the current financial year shall be declared here. In other words, when GST is payable during the financial year on such revenue (which was recognized earlier), the value of such revenue shall be declared here. • (For example, if rupees Ten Crores of unbilled revenue existed for the financial year 2016-17, and during the current financial year, GST was paid on rupees Four Crores of such revenue, then value of rupees Four Crores rupees shall be declared here) S. B. Gabhawalla & Co.

  44. Issue 6: (Clause 5B) Should Clause 5B consider beginning of Financial Year or 1 July 2017? S. B. Gabhawalla & Co.

  45. ICAI- Technical Guide (Pg. 26) Unbilled revenue would appear in the profit and loss account of the previous year. In order to get information of unbilled revenue at the beginning of Financial Year, reference may be had to previous year’s audited financial statements. However, as GST was introduced from 1st July 2017 one needs to be careful to exclude invoices raised during the period April 2017 to June 2017 from the computation. The expression ‘financial year’ for 2017-18 has already been explained above to be 9 months period commencing 1 July, 2017, the value under this clause must be reckoned as at 1 July, 2017 S. B. Gabhawalla & Co.

  46. Issue 7: (Clause 5B & 5H) An amount of Rs. 10,00,000/- was recorded and reported as “Unbilled Revenue” by the Statutory Auditor as on 31.03.2018 but as per Time of Supply provisions under GST, invoice should have been raised prior to 31.03.2018. To what extent the GST Auditor should examine the provisions of ToS? Or should he simply rely on Statutory Auditors judgment? S. B. Gabhawalla & Co.

  47. ICAI- Technical Guide (Pg. 28) Disclosure: Reliance has been placed on the audited financial statements for determining the unbilled revenue and no separate exercise is conducted to validate the same. S. B. Gabhawalla & Co.

  48. Pt II- 5C & 5I- Advances • Clause 5C: Unadjusted advances at the end of the Financial Year (+) • Clause 5I : Unadjusted Advances at the beginning of the Financial Year (-) • Instructions: • Value of all advances for which GST has been paid but the same has not been recognized as revenue in the audited Annual Financial Statement shall be declared here. S. B. Gabhawalla & Co.

  49. Issue 8: (Clause 5C & 5I) • Interpretation of Deposits vs. Advances – whether required or rely upon Statutory Auditors judgment? • Advances for Goods , whether disclosure required? • Advances for Services, tax not discharged, whether disclosure required? S. B. Gabhawalla & Co.

  50. ICAI- Technical Guide (Pg. 36) In case of advance for goods, auditor has to examine whether auditee has discharged tax on advances till 15.11.2017 Advances even if not considered in GSTR 1 and 9 shall be added to turnover here Advances in the nature of financial transactions (deposits/loans) to be identified and ignored S. B. Gabhawalla & Co.

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