Income Tax Checklist by ICAI

APPROACH TO TAX AUDIT UNDER SECTION 44AB OF THE INCOME TAX ACT, 1961

General Instructions

(To be read in conjunction with the Checklist)

1. This document is a joint effort of the Direct Taxes Committee and the Taxation Audit Quality Review Board of ICAI. This checklist is designed to assist the members in enhancing the quality of tax audit under section 44AB of the Income tax Act, 1961. This document is only recommendatory in nature.

2. This checklist has been broadly based on the text of the Guidance Note on Tax Audit under section 44AB of the Income tax Act, 1961/ Implementation Guide w.r.t. Notification No. 33/2018 dated 20.7.2018 effective from 20.8.2018/ Technical Guide on Income Computation and Disclosure Standards. The detailed guidance given in these publications of Direct Taxes Committee of ICAI should be duly referred while conducting the tax audit. This document is not to be considered as a replacement / gist of these publications but should be read along with them.

3. The above-mentioned publications may be revised from time to time depending on the changes in the Act/ Tax Audit Report Format. In case, there is any conflict between the text of the above mentioned publications of ICAI and this document, the text mentioned in publications Guidance Note on Tax Audit under section 44AB of the Income tax Act, 1961/ Implementation Guide w.r.t. Notification No. 33/2018 dated 20.7.2018 effective from 20.8.2018/ Technical Guide on Income Computation and Disclosure Standards shall prevail.

4. While giving the tax audit report the tax auditor will have to use his professional skill and expertise and apply such audit tests as the circumstances of the case may require, considering the contents of the audit report. The tax Auditor will have to conduct the audit by applying the generally accepted auditing procedures which are applicable for any other audit. He is advised to refer to the Standards on Auditing (SAs) as may be relevant, issued by ICAI. In case, there is any conflict between the texts of the Standards on Auditing (SAs) issued by ICAI and this document, the text mentioned in SAs issued by ICAI shall prevail.

5. Where the auditor issues Form No. 3CB, as the audit of financial statements is being done under section 44AB of the Income tax Act, 1961, the auditor should in relation to audit of the financial statements ensure compliance of:

• Accounting Standards issued by ICAI

• Standards on Auditing

• Framework for presentation of Financial Statements issued by ICAI

6. Commonly found Errors

The Taxation Audits Quality Review Board of ICAI has come across certain commonly found errors/ non-compliances while conducting review of Tax Audit Reports. Some of them, which need specific attention of members, have been mentioned, below for reference:

a) Revised SA 700, Forming an Opinion and Reporting on Financial Statements (Para 11.9 of the Guidance Note on Tax Audit under Section 44AB of the Income-Tax Act, 1961)

ICAI had pursuant to the issuance of the Revised SA 700, Forming an Opinion and Reporting on Financial Statements, prescribed a revised format of the auditor’s report on financial statement. Since Form No. 3CA and Form No. 3CB are required to be filed online in a preset form and the same are not in line with the requirements of SA 700, there is no specifically allocated field for providing information relating to the respective responsibilities of the assessee and the tax auditor as required in terms of the principles laid out in SA 700. However, having regard to the importance of these respective responsibility paragraphs from the perspective of the readers of the tax audit report, it is suggested that these respective responsibility paragraphs relating can be provided in the space provided for giving observations, etc., under clause (3) of Form No.3CA or Clause (3) and Clause (5) of Form No.3CB as the case may be.

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Tags: CA, ICAI