PURPOSE AND STANDARDS OF AUDIT
The basic purpose of tax examination is the determination of correct taxable income as defined by the National Internal Revenue Code and other internal revenue tax liabilities of the person or entity whose return is being examined.
Standard refers to the criteria by which the quality of performance of auditing examinations are measured.
A. General Standards
- An impartial mental attitude must be maintained in all affairs relating to an examination in order to assure a fair application of tax laws, regulations and rulings.
- Professional skill and ingenuity must be exercised in the performance of the examination and the preparation of the report.
- Issues should be raised only when, in the Revenue Officer’s opinion, they have real merit and only when they will contribute in the proper determination of tax liability.
- The confidential nature of all information pertaining to any assignment must be strictly observed.
B. Standards of Preliminary Planning
- Sound judgment should be exercised in selecting from assigned returns those which are most likely to contain areas of non-compliance and, where otherwise permissible, survey procedures should be employed to dispose of those which do not warrant further consideration.
- Advance planning of work schedules with reasonable accuracy is essential for the effective use of time.
- A general work plan should be formulated in each case prior to contacting the taxpayer which includes the development of issues suggested by the return and other information.
C. Standards of Field Work
- Audits should normally be performed at the taxpayer’s place of business because of the accessibility of the books and records and to permit actual observation of taxpayer’s facilities and scope of operations. Otherwise, it should be performed in the office of the Bureau of Internal Revenue.
- The use of accounting skills, tax knowledge and ingenuity should be directed toward recognizing and raising issues which relate to non- compliance areas.
- Adequate evidential matter should be obtained through inspection, observation, inquiry, analysis and documentation to afford a reasonable basis for consideration of each issue with regard to the position of both the government and the taxpayer.
- The position taken with respect to each issue should be supported by adequate authority.
D. Standards of Reporting
- Reports are to be prepared in a complete, clear, concise and legible manner in order that they may be easily read and understood.
- Working papers should be legible, in the Revenue Officer’s own hand- writing, properly labeled, indexed, signed and arranged in a logical and orderly manner.
- Working papers should be used as a practical and professional tool to aid the Revenue Officer in the discussion of issues or questions with the taxpayer or his authorized representative. It also generally provides a record of the audit procedures undertaken by the Revenue Officer.
E. Standards of Public Relations
- Initial contact for audit arrangements should be made with the taxpayer and care should be exercised in explaining the type of records required.
- Revenue Officers must be fully cognizant of the proper sources for gathering information and of the rights of the taxpayer and his representatives.
- Necessary time and patience should be devoted to a discussion of any proposed adjustments to ensure that the taxpayer has a proper understanding of the issues.
- Tact and discretion are required in pointing out errors in books and records in order to avoid discrediting an employee or representative of the taxpayer.
Reference: RAMO 1-2000