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Mandate for performance audit Definition of performance auditing, 3 Es concept, Equity and Ethics

Objective of this session is to test the understanding of the participants with reference to the previous Theory Session which covered the following:. Mandate for performance audit Definition of performance auditing, 3 Es concept, Equity and Ethics Specific nature of Performance Audit

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Mandate for performance audit Definition of performance auditing, 3 Es concept, Equity and Ethics

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  1. Objective of this session is to test the understanding of the participants with reference to the previous Theory Session which covered the following: • Mandate for performance audit • Definition of performance auditing, 3 Es concept, Equity and Ethics • Specific nature of Performance Audit • Performance Audit and Programme evaluation • Common types of Programme Evaluation • Performance Audit Process • Expected outcomes of performance auditing. • Objectives of Performance Auditing • Difference between Performance auditing and Financial auditing. • What performance auditing requires from the auditors. • Analyse the performance auditing cycle. • Importance of documentation of decisions at various stages of the performance audits. •  Recognize why the impact of the performance auditing needs to be evaluated. RTI, MUMBAI

  2. Operation of the Scheme of Levy of Minimum Alternate Tax (MAT) on Companies (Case Study) RTI, MUMBAI

  3. Minimum Alternate Tax(MAT) Some companies • have reported substantial profits to shareholders and paid commission on profits to full time directors • Reported just marginal profits or losses for income tax purposes and have paid very nominal or no taxes to the exchequer. • Substantial reduction of tax liability due to exemptions and relief under the Act RTI, MUMBAI

  4. MAT (cont...) • An accepted canon or taxation is to levy tax on the basis of ability to pay. • Reporting of marginal profit or loss by companies with ability to pay tax necessitated to bring in such Zero tax companies under the tax net leading to introduction of MAT as a measure of social justice. RTI, MUMBAI

  5. Questions on MAT for group discussion Q.1: What according to you would be the expected outcome of performance audit on MAT? RTI, MUMBAI

  6. Expected Outcomes Solutions 1: Expected Outcomes of MAT review • Evaluate the degree of compliance by the “Zero Tax” companies with the MAT provisions of the Income Tax Act. • Scrutinize the implementation of the scheme and the extent of loss of revenue or under assessment and other irregularities on basis of the assessments made by the assessing officers. RTI, MUMBAI

  7. Expected Outcomes • Ascertain if there are any lacunae in the law resulting in leakage of revenue to the exchequer • Ascertain the number of companies that would have attracted the special provisions for assessment and have not been so assessed and the resulting potential loss of revenue on this account. RTI, MUMBAI

  8. Performance audit v/s Regularity Audit Q.2: How would performance Audit differ from Regularity Audit in the area of Direct Taxes ? RTI, MUMBAI

  9. Performance audit As various types of issues relating to MAT would be examined, over a period of time an overall perspective of how the scheme of MAT has been successful could be gauged. Regularity audit The audit is assessment based, individual cases of irregularity get reported and as such an overall perspective of this particular scheme (MAT) is not possible. Performance audit v/s Regularity audit (SCOPE) Solution to Q.2 RTI, MUMBAI

  10. Performance audit To Focus mainly on the implementation of the provisions of the MAT scheme as a whole covering all the aspects, and highlight lacuna if any and recommend measures to over come the lacuna. Regularity audit To point out individual cases of irregularity on all aspects of receipt Audit. Covering various provisions of Direct Tax Laws, including MAT. Performance audit v/s Regularity audit (OBJECTIVES) RTI, MUMBAI

  11. Performance Audit Assessment orders Financial statements list of loss making companies. Finance minister’s speech Objects and clauses to Finance Bill Explanatory memoranda to Finance Bill and Act Media reports, expert view Regularity Audit Assessment order Financial statements. Performance audit v/s Regularity audit(EVIDENCE) RTI, MUMBAI

  12. Performance Audit V/s Regularity Audit Q.3 In what way are the three E’s i.e Economy. Efficiency and Effectiveness relevant to audit or Direct Taxes in general and MAT in particular ? RTI, MUMBAI

  13. Relevance of three Es Solution 3: Economy and Efficiency in the field of Direct Taxes get reflected in the cost of collections. Effectiveness with reference to MAT • To evaluate the degree of compliance by Zero Tax companies • Scrutinize the manner of the implementation of the scheme. • Ascertain if any lacuna in the law. • Ascertain the number of companies that should have been brought under the scheme. RTI, MUMBAI

  14. Requirement of Performance Audit Q.4: What should be the criteria for selection of Auditors to conduct Performance Audit of MAT? RTI, MUMBAI

  15. Requirement of Performance Audit Solution 4: SOUND KNOWLEDGE OF • Company Law • Direct Tax Law • Accounting Conventions & Practices • Accounting Standards RTI, MUMBAI

  16. Audit Management Process Documentation Q.5: What are the important documents generated at the various stages of the Audit Management Process? RTI, MUMBAI

  17. Audit Management Process Documentation Solution 5: • PILOT STUDY REPORT • FINAL GUIDLINES RECEIVED FROM HEAD QUARTERS OFFICE • MINUTES OF WORKSHOP AND MIDTERM APPRAISALS HELD • CORRESPONDENCE / CLARIFICATION AT VARIOUS STAGES RTI, MUMBAI

  18. Impact Evaluation of Performance Audit Q.6 How would the impact of review on MAT be evaluated? RTI, MUMBAI

  19. Impact Evaluation of Performance Audit Solution 6: • A comparison of Audit findings with the objectives outlined in the initial guidelines • Evaluation of the Schemes / Projects / Lacunas • Conclusions / Recommendations RTI, MUMBAI

  20. Impact Evaluation of Performance Audit • Impact of Performance Audit can be ascertained when the audit of the same Assessing officer is taken up. • Compare to the MAT provisions with reference to Audit observations are followed would be seen as a follow up action. RTI, MUMBAI

  21. Impact Evaluation of Performance Audit • Rectification carried out with reference under assessment will also be an indicator of impact evaluation. • Incase the revenue dept brings out any amendment to the Act/Rules that will also be an indicator of Performance Audit impact. RTI, MUMBAI

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