Revenue Audit, as an independent and
important domain of public auditing, has been engaging the attention of the
Supreme Audit Institutions for quite some time. Right from the INTOSAI
declarations at Brazil in May 1959, the various declarations of INTOSAI and
ASOSAI have stressed the importance of this function. The Bali Declaration of
June 1988 issued a fairly detailed guideline in the area of tax audit.
The ASOSAI Governing Board, which met in
Sydney, Australia in May 1993, decided to launch the Fourth ASOSAI Research
Project on "Government Revenues - Accountability and Audit".
Consequently the present project was undertaken by a research team consisting
of the following members:
1. Mr. P.K. Lahiri, Deputy
Comptroller and Auditor General of India (Team Leader)
2. Mr. Ab. Rahman Mohammed,
Deputy Auditor General of Malaysia
3. Mr. Tony Minchin,
Executive Director, Australian National Audit Office
This publication is the outcome of the
Research Project, Twenty Five member countries of ASOSAI have contributed
papers for this Research Project.
On behalf of ASOSAI, I would like to express
my appreciation of the work done by the members of the research team. I would
also like to thank all the members of ASOSAI, especially those who have
contributed country papers for this project. Without their active co-operation
and support it would not have been possible to bring out this publication. My
thanks are also due to the Auditors General of India, Malaysia and Australia
for making their Senior Officers available for this project.
This book brings out the structure and
framework of revenue audit in the member countries of ASOSA1. The papers bring
out the revenue scenario (tax and non -tax) in different countries and some
macro-economic indicators like tax - GDP ratio and other comparators. I hope
this publication will be useful and interesting for professionals in public
auditing as well as academicians, researchers, administrators and legislators.
Kunarto
Acting Chairman of the Supreme Audit Board
of Indonesia and
Chairman of ASOSAI
May 1998
1. Introduction
1.1 Government revenues :
the conceptual framework:
1.1.1 Government revenues
are derived from two sources: tax receipts and non-tax receipts, the major
source of national revenues being tax receipts raised through fiscal statutes.
Non-tax receipts (fees, cess, etc.) are generally raised through non-statutory
mandates and usually a reciprocal benefit accrues to the citizens from whom
such receipts are collected, unlike tax receipts where the element of quid pro
quo is absent. According to one classic definition "..... .taxes proceed
upon the theory that existence of government is a necessity, that it cannot
continue without means to pay its expenses, that for those means it has the
right to compel all the citizens and property within its limits to contribute,
and that for such contribution it renders no return of special benefit to any
property but only secures to the citizen that general benefit which results
from protection to his person and property, and the promotion of those various
schemes which have for their object the welfare of all...". This
definition finds an echo in Justice Holmes's rhetoric: "Taxes are what we
pay for civilised society".
1.1.2. Taxation policy of a
government generally seeks to apply the following desirable fiscal principles
:-
(a) The subjects of every
State ought to contribute to the support of the Government as nearly as
possible in proportion to their respective abilities; that is, in proportion
to the revenue which they respectively enjoy under the protection of the
State. The observation or neglect of this maxim reflects what is called the
equality or inequality of taxation.
(b) The tax which each
individual is bound to pay ought to be certain and not arbitrary. The time of
payment, the manner of payment, the quantity to be paid, ought all to be clear
and plain to the contributor, and to every other person.
(c) Every tax ought to be
levied at the time, or in the manner, in which it is most likely to be
convenient for the contributor to pay it.
(d) Every tax ought to be
so contrived as both to take out and keep out of the pockets of the people as
little as possible over and above what it brings into the public treasury of
the State.1,2
1. Wharton's
Law Lexicon-Fourteenth Edition 1993 (Published by Universal Book Traders New
Delhi under special arrangement with Sweet & Maxwell Ltd. London) - page
978
2. Public
Finance in Theory and Practice by R.A. Musgrave and P.B. Musgrave (Published
by McGraw Hill Kogakusha Ltd. Second Edition Chap. 9)
1.2 Audit of government
revenues : INTOSAI declarations on revenue audit
1.2.1 In recognition of the
importance of an efficient revenue collection system for mobilising the
budgetary resources of the government, the need to establish revenue audit as
a specialised and independent domain has been engaging the attention of the
Supreme Audit Institutions for quite some time. The International Congress of
International Organisation of Supreme Audit Institutions (INTOSAI) held at Rio
de Janeiro, Brazil in May, 1959 recommended that:
• Supreme Audit
Institutions (SAI) ought to exercise the broadest possible supervision of
revenues.
• Supervision should not
be limited to the checking of collection of revenues in line with the accounts
rendered by the collectors but, wherever possible, a check should be made to
see whether or not tax payments were in line with legislation.
• SAIs should ascertain
whether there has been negligence in the matter of collections or exaggeration
in the estimates.
• The observations of the
Audit Court on the management of the budget, as presented to the legislative
assemblies, should contain the maximum of information in regard to revenues.
• The SAIs ought to be
equipped to carry out their duties, especially as regards supervision of
revenues, with mechanised accounting and statistical services.
1.2.2 The subject of
revenue audit was again a matter of concern for the INTOSAI in the
International Congress held at Madrid, Spain in 1974. The Congress recommended
inter alia that:
• SAIs exercise the most
extensive control feasible over the collection of fiscal revenue and consider
this of equal significance with the control over expenditure
• This control should
cover both assessment and collection and the SAIs should be granted access to
all fiscal documents, including the individual files of tax payers
• The control of fiscal
revenue should be primarily concerned with legality and regularity
1.2.3. Section 20 of the
Lima Declaration of INTOSAI (October 1977) again featured tax audit as an area
of concern. The declarations on tax audit covered the same grounds as Brazil
and Spain recommendations.
1.3 Bali Declaration of
ASOSAI on revenue audit
1.3.1 The concept of tax
audit was a sub-theme in the Third International Seminar of ASOSAI held at
Bali, Indonesia in June 1988. The following guidelines were recommended in the
area of tax audit.
(a) Audit mandate: SAIs
should seek clear and specific legal authority for undertaking comprehensive
tax audits in conformity with the relevant provisions of the Lima Declarations
on Auditing Precepts.
(b) Audit of individual tax
assessments: It is important that individual tax files are examined to
evaluate the adequacy of the system and procedures of tax assessment and
collection. As the examination of all tax files is neither feasible nor
necessary, best results may be obtained while concentrating on high value and
risk areas. Selective auditing of business income cases rather than salary
assessment, investigations of reported evasions and use of suitable
statistical sampling techniques in the review of files are preferred
practices. Data and information on tax payers collected by the tax authority
may be verified against other independent sources available.
(c) Interpretation of tax
laws: SAls should scrutinise the rules, regulations and notifications issued
by the executive agencies under the tax statutes.
(d) Scrutiny of decisions
of tax authorities: Where quasi-judicial and discretionary powers are vested
in the tax officials, any decisions taken in the exercise of such powers
should be scrutinised in audit.
(e) Audit methodology:
Audit should be mainly system based and the objective should be to discover
loopholes, lacunae and deficiencies not only in tax administration but also in
tax laws. Adequate procedures for identifying and dealing with tax avoidance
rising from deficiencies in laws could be considered so that remedial action
including amendments to the laws could be taken promptly.
(f) Socio-Economic
implication of taxation. The social and economic goals proposed to be achieved
through tax concession and relief should be reviewed in audit.
(g) Reporting on the
results of tax audit: Having regard to personal privacy considerations, it is
imperative that confidentiality be maintained in reporting individual
assessments in the audit reports.
(h) Training of tax
auditors: Tax audit is a specialisation which requires thorough knowledge of
the relevant laws and regulations. SAIs should provide intensive and frequent
training for tax auditors taking advantage of the training facilities
available in their local tax department's training institutions as well as
those in other SAIs.
1.4 Objective of the
fourth ASOSAI Research Project on "Government Revenues - Accountability
and Audit"
1.4.1. The ASOSAI governing
Board which met in Sydney, Australia in May 1993 decided that the fourth
ASOSAI Research Project would be on the topic "Government Revenues -
Accountability and Audit" Accordingly this research project was
undertaken to study the system of revenue administration in ASOSAI member
countries and prevailing auditing practices in this area. Relevant aspects
such as sources of government revenues through tax and non-tax measures,
different fiscal statutes governing tax collection in the member countries,
the extent of government revenues under the audit domain, audit methodologies
for revenue audit and impact of revenue audit on tax administration etc. were
examined. Papers have been contributed by the following twenty six member
countries of ASOSAI:
1.4.2. (i) Australia, (ii)
Bangladesh, (iii) Brunei Darussalem, (iv) China, (v) Cyprus, (vi) India, (vii)
Indonesia, (viii) Iraq, (ix) Japan, (x) Jordan, (xi) Korea, (xii) Kuwait,
(xiii) Kyrghyztan, (xiv) Malaysia, (xv) Myanmar, (xvi) Nepal, (xvii) New
Zealand, (xviii) Pakistan, (xix) Papua New Guinea, (xx) Philippines, (xxi)
Russia, (xxii) Saudi Arabia, (xxiii) Thailand, (xxiv) Turkey. (xxv) United
Arab Emirates and (xxvi) Yemen
1.5 Methodology of the
research project
1.5.1 The research team for
the project, consisting of senior officers of SAIs of Australia, India and
Malaysia, under the leadership of Deputy Comptroller and Auditor General of
India, framed the guidelines for the project which were circulated to thirty
member countries of ASOSAI. Twenty six countries sent the country papers based
on the guidelines. Each member of the research team was co-ordinator for a
group of country papers. The papers were edited by the co-ordinators and the
edited texts were sent to the contributing countries for their
comments/acceptance. The research team had three meetings to finalise the
guidelines and the research output. The country papers printed in the book are
the final versions of the texts which have been accepted by the contributing
countries.
2. Government Revenues:
scope and extent
2.1. Sources of government
revenues
2.1.1 As mentioned earlier,
government revenues are sourced from various tax and non-tax receipts. The
country papers bring out the dimensions of these two sources which in turn
influence the areas of audit priority.
2.2. Tax and non-tax
revenues
2.2.1 Government revenues
are largely dependent on taxes legislated through various tax statutes.
However, the spread of the two sources, viz. tax and non-tax revenues, varies
between countries.
2.2.2. The table below indicates the figures
for these two sources for which the SAI has tax responsibility.
Table 1
Spread of tax and non-tax revenues
|
Country
|
Fiscal
year
|
Percentage
share of tax and non-tax revenue in national revenue
|
|
Tax revenue
|
Non-tax revenue
|
|
1. Australia
|
1995-96
|
95.6
|
4.4
|
|
2. Bangladesh
|
1995-96
|
79
|
21
|
|
3. Cyprus
|
1995
|
83.52
|
16.48
|
|
4. India
|
1995-96
|
65.43
|
34.57
|
|
5. Indonesia
|
1996-97
|
64.3
|
35.7
|
|
6. Jordan
|
1995
|
54.1
|
45.9
|
|
7. Korea
|
1995
|
96.3
|
3.7
|
|
8. Malaysia
|
1996
|
81
|
19
|
|
9. Nepal
|
1994-95
|
80
|
20
|
|
10. New Zealand
|
1996-97
|
93.9
|
6.1
|
|
11. Pakistan
|
1995-96
|
79.9
|
20.1
|
|
12. Papua New Guinea
|
1995
|
83.5
|
16.5
|
|
13. Russia
|
1997 (estimated)
|
86
|
14
|
|
14. Thailand
|
1997 (estimated)
|
90.3
|
9.7
|
|
15. Yemen
|
1993
|
61
|
39
|
2.3. Direct and indirect
taxes
2.3.1 An interesting
feature of taxation scheme is the degree of dependence of the countries on the
two forms of taxes, i.e. direct (on income/wealth/receipt) and indirect (on
manufacture/transaction).
Table 2
Share of direct and indirect taxes
|
Country
|
Fiscal
Year
|
Percentage share of
direct & indirect Taxes in the tax revenues
|
|
Direct Taxes
|
Indirect Taxes
|
|
1. Australia
|
1996-97
|
74.7
|
25.3
|
|
2. Bangladesh
|
1994-95
|
14
|
86
|
|
3. China
|
1995
|
24.7
|
75.3
|
|
4. Cyprus
|
1995
|
42
|
58
|
|
5. India
|
1995-96
|
30.7
|
69.3
|
|
6. Iraq
|
1993
|
40.5
|
59.5
|
|
7. Japan
|
1995
|
67
|
33
|
|
8. Jordan
|
1995
|
18
|
82
|
|
9. Korea
|
1995
|
44
|
56
|
|
10. Malaysia
|
1996
|
54.7
|
45.3
|
|
11. Myanmar
|
1995-96
|
30.2
|
69.8
|
|
12. Nepal
|
1994-95
|
19.6
|
80.4
|
|
13. New Zealand
|
1996-97
|
67.7
|
32.3
|
|
14. Pakistan
|
1995-96
|
26
|
74
|
|
15. Phillipines
|
1995
|
32.8
|
67.2
|
|
16. Russia
|
1996
|
43.7
|
56.3
|
|
17. Thailand
|
1997 (estimated)
|
31.9
|
68.1
|
|
18.Turkey
|
|
48.6
|
51.4
|
|
19. Yemen
|
1993
|
40
|
60
|
(note: local
taxes have been excluded)
2.4. Tax-Gross Domestic
Product (GDP) ratio.
2.4.1. Tax-GDP ratio is an
accepted macro-economic indicator to measure tax buoyancy.
Table 3
Tax-GDP Ratio
|
Country
|
Fiscal
Year
|
Percentage
of tax to GDP
|
|
1. Australia
|
1996-97
|
23.9
|
|
2. Bangladesh
|
1995-96
|
9.4
|
|
3. Cyprus
|
1995
|
22.9
|
|
4. India
|
1995-96
|
17.2
|
|
5. Iraq
|
1993
|
2.3
|
|
6. Jordan
|
1992-93
|
18.2
|
|
7. Kyrghistan
|
1992
|
12.7 (of GNP)
|
|
8. Malaysia
|
1996
|
36.3
|
|
9. Myanmar
|
1996-97
|
3.1
|
|
10. Nepal
|
1994-95
|
9.4
|
|
11. Pakistan
|
1995-96
|
13.8
|
|
12. Phillipines
|
1995
|
41.5
|
|
13. Thailand
|
1993
|
17.1
|
|
14. Turkey
|
|
18
|
2.5. Revenue-GDP ratio
2.5.1. Revenue-GDP ratio is
an extension of tax-GDP ratio covering both tax and non-tax receipts.
Table 4
Revenue-GDP ratio
|
Country
|
Fiscal
Year
|
Percentage
of total governments revenues to GDP
|
|
1. Australia
|
1996-97
|
25
|
|
2. Bangladesh
|
1995-96
|
11.9
|
|
3. Cyprus
|
1995
|
27.4
|
|
4. India
|
1995-96
|
25.6
|
|
5. Jordan
|
1995
|
33.5
|
|
6. Malaysia
|
1996
|
44.2
|
|
7. Myanmar
|
1995-96
|
5.9
|
|
8. Nepal
|
1994-95
|
11.7
|
|
9. Pakistan
|
1995-96
|
17.2
|
|
10. Turkey
|
|
21
|
2.5.2 Many countries have a
three-tier system of raising revenues: (a) federal taxes and non-tax sources
(b) state/provincial taxes and non-tax sources and (c) revenues raised by and
for local bodies. The ratios given in the above tables are indicative only,
due to possible differences in the classification between countries.
2.5.3. Since containing the
level of fiscal deficit is an area of concern for any government, an efficient
system of revenue collection is a very vital component for a country's fiscal
stability and economic growth. Revenue audit has an important role to play in
supporting the tax effort of the government by suggesting improvements in
existing revenue assessment and collection systems. Widening the tax base
through legislative and other measures is, however, within the purview of the
executive and outside the audit domain.
3. Role of Revenue Audit:
Audit Mandate
3.1 The member countries of
ASOSAI derive their mandate for revenue audit from the respective
constitutions and/or audit acts.
3.2 The audit legislation
of Australia sets out the mandate of the Auditor General and provides that the
Auditor General has access to all federal agencies' accounts and records. In
Bangladesh the Auditor General derives his mandate from the Constitution and
the Comptroller and Auditor General, Additional Functions Act 1974 which give
the Auditor General access to all records in possession of any person in the
service of the Republic. However, a controversy has arisen between the
National Board of Revenue (NBR) and the Auditor General regarding the Auditor
General's access to the individual assessment records for direct taxes which,
according to the NBR, are confidential documents as per the Income Tax
Ordinance 1984. The Ministry of Law and Justice has upheld the rights of the
Auditor General in its latest opinion. Hence audit of income tax assessments
have not yet truly begun there. A similar situation prevails in the
Philippines where the Commission on Audit (COA) promulgated a resolution
authorising the auditors to evaluate the internal controls of the revenue
administration system and to review the assessment records, collection records
and other accounting records. This resolution has been opposed by the Board of
Internal Revenue (BIR) considering it an encroachment by COA on the authority
of BIR and a petition has been filed in the Supreme Court to set aside the COA
resolution. The COA is optimistic that the court will finally resolve the case
in its favour. In India the CAG has unfettered right of access to any
assessment or other records of revenue. Since individual assessment records in
income tax are confidential documents, a provision has been made under the
Indian Income Tax Act endorsing the CAG's right of access to any individual
assessment record. In Malaysia various revenue laws contain provisions
allowing the Auditor General unimpeded access to all financial records. The
Malaysian Income Tax Act provides for disclosure of all classified materials
to the Auditor General. In Brunei Darussalem the SAI audits all revenues from
services, utilities and indirect taxes but does not audit revenues derived
from corporate tax and oil and gas extraction. In Cyprus, the audit teams
visit the factories and bonded warehouses jointly with the departmental
representatives for audit of excise and customs. In Japan the Board of Audit
audits State taxes only and does not audit the local taxes collected by local
governments i.e. Municipalities and Prefectures. In Jordan the SAI has sought
an amendment of Audit Bureau's Law No. 28 for 1952 which will secure
constitutional immunity for the President of the Audit Bureau and ensure his
financial and administrative independence. In Korea the SAI has the power to
seal warehouses, safes, documents and articles and can examine any person who
is concerned with the subject matter of audit. In Russia the refusal or
evasion of an audtitee to supply information/records to the SA1 is tantamount
to an offence under the Criminal Code of the Russian Federation. The Russian
SAI (Accounts Chamber of the Russian Federation) has a mandate to do expert
examination of federal draft laws as well as of the standard legal acts of the
federal bodies of state governments which bear on the federal budget and
budgets of federal extra-budgetary funds. It has done an expert study of the
draft Tax Code, which will introduce an integrated taxation system in the
country, and its recommendations have been presented to the Federal Council,
the State Duma and the Government of the Russian Federation. In New Zealand
the auditing standards prescribed by the SAI have adopted the standards of the
Institute of Chartered Accountant of New Zealand as the minimum but has
enlarged it to include inter alia the area of non-financial performance
measures which provide a gauge on how well the Inland Revenue Department has
performed in carrying out its functions on behalf of the Crown.
3.3 The audit mandates of
most of the countries are quite comprehensive and exhaustive allowing the SAIs
access to all revenue records, confidential or otherwise. Wherever
controversies have arisen regarding the jurisdiction of audit, the issues have
been generally settled in favour of the SAIs. The constitutions and/or the
audit acts have provided for the independence of audit vis-a-vis the
executive.
4. Audit Methodology
4.1 The methodologies and
techniques of revenue audit have evolved over time in member countries
depending on the local circumstances. The methodologies have been designed to
achieve the audit objectives provided in the audit mandates. The object of
receipt audit is to seek evidence that revenue is assessed and collected
according to law and errors of omission and commission are avoided in
assessment. It also seeks assurance that pre and post control systems operate
efficiently and in accordance with the stated objectives in the sovereign and
subordinate legislations. It is the duty of audit to identify the lacunae in
the Acts/Rules leading to non-fulfilment of stated policy objectives of the
Government regarding revenues and to suggest remedies to overcome the legal
infirmities. Since correct interpretation of tax laws is a prerequisite for
quality audit, a proper understanding of the "settled law" is an
absolute necessity for an auditor. Where clear judicial pronouncement exists
the problem is easily solved. But in grey areas where the revenue and audit do
not see eye to eye or there are conflicting judicial opinions, a
machinery/system like bi-partite/tri-partite discussions involving the Law
Department or reference to the Attorney General should be available whose
opinion should be acceptable to both Audit and revenue department. Such
systems are already in operation in countries like India, Bangladesh, Cyprus,
Pakistan etc.
4.2 The collection and
accounting system of Government revenues are checked in audit to assess
whether internal procedures and controls adequately provide for regular
accounting of collection and allocation and credit of the collections to the
Government account.
4.3 The Australian National
Audit Office produces four main audit products: (a) Financial Statement
Audits, (b) Performance Audits, (c) Financial Control and Administration Audit
and (d) Assurance and Control Assessment Audits each with particular
methodologies. Tax auditing in China involves the audit of state tax plan
implementation and measurement of the growth in tax collection with reference
to the growth in economy and analysis of the causes of variance, if any. In
Japan the Board of Audit is entitled to present its opinion on the improvement
of tax laws and regulations. In Korea mobile inspection is carried out by the
auditors in secret to check corrupt practices in tax assessment and
collection. In Customs audit in Myanmar, the SAI ensures that rules and
regulations have been framed in accordance with laws and policies of the
government and they provide an effective internal control system. In Pakistan
the audit of SAI is divided into two main functions: (a) compliance audit and
(b) "subject studies". In the Philippines a system based approach is
adopted in audit of government revenues. In Saudi Arabia the SAI applies
statistical sampling techniques for selection of auditable documents. In the
United Arab Emirates the SAI audits the government revenues in three phases:
assessment phase, collection phase and "deposit phase". In Yemen the
SAI checks the various factors affecting the tax estimation.
4.4 Proper audit process
presupposes careful audit planning to achieve the desired audit output. The
SAls have developed audit planning systems with reference to audit parameters
and audit resources.
4.5 At the strategic
planning level, Australia prepares annually audit strategies for each major
Commonwealth agency. These strategic documents are the basis for all audit
work programmes. Operationally the audit work plan identifies:
• The task to be
completed
• The resources to be
used
• The timing of key
milestones in the project
• The expected outcome
and impact of the audit
4.6. In Bangladesh,
depending on the budget size, revenue collection and risk, the auditee units
are categorised as 'A', 'B' or 'C', the 'A' category units being audited
annually. In Indonesia the SAI's revenue audit includes evaluation of the
internal controls and verification and monitoring of periodic and annual tax
reports. In Japan the audit planning is two-fold i.e. top-down and bottom-up.
The Board of Audit Management establishes overall audit policies and the Audit
Divisions shifts priorities for tax audit,- points of emphasis etc. In Korea
the Annual Corporate Plan of the SAI is drawn up before the end of the
previous year. Based on the Annual Audit Plan, the Quarterly Plans are
prepared to suit available audit resources and the environment of auditees. In
the Philippines the audit plan is dependent inter alia on the size and
complexity of the agency's operations and quality of the internal control
system. In India the strategic audit plan identifies the order of priority of
the assessment units based on risk perception. The risk parameters are :
• Level of revenue
realisation of each assessment unit
• Nature of audit
findings in each assessment units
• The nature of the
assessment unit etc.
4.7. In Saudi Arabia the
SAI lays down the annual plans and quarterly work programmes using computer
systems to maximise output. In Malaysia the Audit Planning Memoranda are
prepared by the Revenue Audit Branch for review by senior management in the
National Audit Department before comprehensive audits are conducted. Sampling
techniques are extensively used in Malaysia to select transactions for audit
scrutiny. In Pakistan the auditee formations are classified according to their
workload.
4.8 The strategic and
operational planning of revenue audit are a component part of the corporate
audit planning with individual audit risk parameters of revenue provided
suitably with due weightages.
5. Information Technology
(IT) Audit
5.1 Many member countries
of ASOSAI have developed sophisticated Information technology (IT) audit
systems for effective use in audit process.
5.2 In Australia, the SAI's
audit approach integrates the impact of information technology systems and the
associated internal control structure and recognises that IT systems are vital
to the operation of agencies and to the development of their financial
statements. The SAI of Brunei Darussalem has a small IT audit section with
officers having IT audit experience. In India a computerised audit planning
system has been developed to facilitate the audit process. In Japan, the SAI's
computerised audit process involves unloading tax files' data from audtiees'
mainframe computers to the personal computers of auditors for audit analysis.
In Korea the SAI uses three techniques for IT audit : (a) the relevant data
comparison method, (b) the program checking method and (c) the parallel
simulation method. The SAI in Malaysia is using propriety software i.e.
"Audit Command Language" for conducting audits. The Revenue Audit
Branch uses computer software in its sample selection procedure. In New
Zealand the SAI uses Computer Assisted Audit Techniques (CAAT) during audit.
The SAI of Pakistan proposes to introduce the monitoring of audit observations
through computer and establishing a computer link with the Central Board of
Revenue. The SAI of the Philippines proposes to conduct an evaluation of the
computerised tax system in the revenue departments when the same becomes fully
operational. The SAI of Saudi Arabia has established an Information Centre
with the object of developing an accurate automated system.
5.3 IT audit is an area
which is showing varying degrees of growth in the member countries. While some
countries have developed fairly sophisticated systems, others are in the
process of development in response to the increasing level of computerisation
in the audit environment.
6. Audit Reporting:
standards and systems:
6.1 The Audit Report is one
of the instruments to ensure legislative accountability of the revenue
administration. The Audit Reports are placed in the Parliament where there is
a parliamentary system or reported to the highest executive of the country
where the parliamentary system does not exist. In many countries there is a
select committee of legislature/parliament which discusses the Audit Reports,
takes evidence on the issues raised by Audit and gives its final
recommendations. The initial audit findings arising during the course of field
audit typically are communicated to the revenue administration in the form of
a management letter/inspection report and the views of the department are
obtained before finalising an observation. Significant audit findings
involving large transactions, leakages and fraud are reported to the
Parliament/legislature/chief executive through Audit Reports. An active and
meaningful debate in the Parliament and public media helps in plugging the
loopholes in the system if the report is timely and follows good reporting
standards.
6.2 The system of
examination of audit reports by legislative committees of the legislature,
exists in all the countries with a parliamentary form of government like
Australia, Bangladesh, Cyprus, India, Japan, Korea, Malaysia, Myanmar,
Pakistan, Papua New Guinea and Russia. In other countries the major audit
findings are reported to the head of the state.
7. Human Resource
Management
7.1 Revenue audit has been
accepted as a specialised area requiring adequate skill formation and skill
improvement. Most of the SAI members are responsive to the training needs in
this area and are trying to develop or have developed strong task forces to
carry out an effective mission in this branch of audit. Various internal and
external training courses and workshops are organised by the SAls to equip the
work force with the necessary technical inputs Since revenue audit is largely
a legalistic audit, the complexities and nuances of the tax laws and case laws
have to be clearly understood and appreciated by revenue auditors for any
meaningful audit analysis. Maintenance of a properly documented and accessible
system of case laws, national and international, is necessary to keep the
knowledge and information up to date.
7.2 Many of the member
countries of ASOSAI have in-house training facilities in specialised areas
like revenue audit. Some countries have the system of utilising the training
facilities of the revenue departments to update the skill and knowledge of the
revenue auditors. However, some SAIs feel that existing training facilities
need improvement, especially in revenue audit and computer systems.
8. Impact of Audit:
systemic and legislative changes
8.1 As stated in the Bali
Declaration, one of the objectives of the receipt audit is to point out
loopholes, deficiencies and lacunae not only in the tax administration but
also in tax laws. Many SAIs. have brought about important
procedural/legislative changes through their audit reports.
8.2 In Australia the SAI
has succeeded in producing systemic changes through their performance audit
across the Australian Tax Office and other agencies. The SAI of Japan has
brought about important amendments in Income Tax discount system. In India
significant legislative and procedural changes have been brought about in tax
laws of the Union and the States as well as in non-tax receipts through the
audit findings. These have helped in streamlining the revenue administration.
In Malaysia audit studies have brought about several amendments to the Income
tax Act and Customs Act as well as important system changes in revenue
administration. In Korea audit findings have institutionalised the widening of
the database of revenue departments. In Jordan, as a result of audit findings,
rent charges were included within the scope of business income.
9. Conclusion : future
trends
9.1 Revenue audit has been
recognised by all the member countries as an important area which requires
greater attention and more specialisation. In this era of trade globalisation
and shift to market economy, every country will be opening avenues of
investment. Government's fiscal policies and laws will in turn tend to change
according to the new economic environment. Consequently audit will have to
adapt itself to the changed pattern of government revenues and define its
auditing standards accordingly. For example, Value Added Tax (VAT) may replace
the existing indirect taxes in many countries and a liberalised tax regime may
reduce the tax rates to attract investments without reducing the share of
Government Revenues. Audit will have a role to play in ensuring that
appropriate tax laws are in position to translate the changes, and that laws
are implemented properly to safeguard government revenues in an era of
liberalisation and that "what is Caesar's is rendered unto Caesar".
As mentioned earlier, IT audit is another area of challenge which will have
its own momentum of development in the member countries of the ASOSAI.
