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Don’t panic before the field audit

4 years ago

Sooner or later, almost every company is confronted with the situation that a tax audit is pending. The focus is regularly on the question: Is the accounting proper?

The ordering of a tax audit can often be unsettling at first: What can the company expect? Can there be negative consequences? But first of all, it should be said: A tax audit is part of normal everyday life and can also be well prepared by the company!

There are different types of field audits, for example

Audit
External payroll tax audit
Special VAT audit

What is tested?

The tax audit is very common. In this case, the company receives an audit order. And this arrangement already results in a lot of important information that the company can use to prepare itself and the accounting department accordingly. For example, the company can check:

When should the exam take place?
What periods are checked?
What types of taxes are checked?

With this knowledge, the accounting department can already take action and provide the appropriate documents. This should be done carefully: If documents are missing or the contact person does not know where they are stored, this does not make a trustworthy impression on the examiner. This makes it all the more important to collect all the necessary data in advance. In principle, every booking must also be able to be documented.

Note: For certain audits, such as the VAT review, the wage tax audit or the cash register audit, the auditor comes by unannounced. Accounting must therefore always be properly managed.

Typical focus areas in examinations

It is difficult to estimate which facts an auditor will take a closer look at. However, tax audits regularly focus on, among other things:

Gifts
Entertainment costs
Company car
Incentives
Transfer pricing
VAT issues
Accruals

In current cases, it is also to be expected that the correct booking of corona aid and cash accounting will be intensively checked – companies can prepare for this accordingly, check all receipts for completeness and, in case of doubt, consult the accounting expert.

Know and pay attention to subtleties

Of course, a company should always be cooperative when it comes to an external audit. But it is also important to know which principles and limits apply to the examiner. In case law, it has been shown again and again how complex individual questions can be in the course of an examination. Here are some more recent examples:

The Federal Fiscal Court has ruled that a request to provide a data carrier according to “GDPdU” for tax audits of a company that determines its profit according to the income statement can be unlawful (Federal Fiscal Court, judgment of 7 June 2021, VIII R 24/18).
The use of an Excel spreadsheet for target/actual reconciliation in the context of cash management does not necessarily lead to poor accounting, the Münster Fiscal Court ruled (judgment of 29 April 2021, 1 K 2214/17 E, G, U, F).
Minor deficiencies in cash management do not entitle the tax auditor to make additional estimates that go beyond the concrete effects of these deficiencies, the Münster Fiscal Court ruled (FG Münster, judgment of 9.3.2021, 1 K 3085/17 E,G,U).
If no final meeting was held, this does not lead to a prohibition on the use of the audit results or to the nullity of the notices issued on the basis of the audit, the Tax Court of the State of Saxony-Anhalt ruled (judgment of 23.2.2021, 3 K 1195/17).

Note: There are numerous regulations and administrative instructions for the principles of proper accounting. Know-how is required here: If you do not have your own accounting expert in the company, you should definitely get help from outside and also ask your tax advisor for support. Ideally, these contact persons should also accompany the field audit. Complex questions can often be clarified with the auditor in a timely manner.

As an external service partner for accounting, we work closely with our customers during tax audits. Well prepared, they can look forward to the appointment calmly and save themselves trouble and money. Are you already using external support for field audits? We look forward to your comments.

Image source: Unsplash, Photographer: NordWood Themes