An audit means the audit firm asks for the documents behind every balance, on a date. Tax & Compliance gets you ready. The tax on every invoice and bill checked for where you operate, every filing matched to your books, and the next due date always in view.
What it checks
- Sales tax rate on invoices. The tax rate on each sales invoice line equals the rate for the customer's location and the item, in the places you operate.
- Tax on purchases recoverable. Tax you claim back on a bill is allowed under the rules you have given, and the bill supports it.
- Withholding on contractor payments. A contractor paid more than the reporting threshold in a year has a tax id and the reporting form on file.
- Filing reconciles to the ledger. The amounts on each filing equal the tax accounts in your books for the period.
- Filing on time. Every filing on your calendar is filed by its due date, and the next due date is shown while it is open.
- Tax accounts clear. The tax you owe and the tax owed to you go to zero each period, once filed and paid.
- Jurisdiction against activity. A sale to a place you have not said you operate in is put to you as a question, not flagged as wrong.
A finding, in its own words
Invoice 2088 to a Denver customer charges 2.9% sales tax. Your rules for Colorado set the Denver combined rate at 8.81% for this item. That is $59.10 under-collected on $1,000.00.
Your Q2 Colorado filing reports $4,210.00 of tax collected. The ledger's sales-tax payable for Q2, the tax collected and not yet paid over, shows $4,655.00. The difference is $445.00; tell me where it went or I will keep it open.
What it may ask you
- Which tax filings do you make, and how often? For example 'Colorado sales tax, monthly'.
- For each state, what is your sales tax registration number?
- Do you sell anything that isn't taxed, like wholesale beer to distributors?
- Above what amount in a year do you report a contractor's payments? Leave blank for the IRS figure. Unless you say otherwise: 600.
- Any purchase tax you can claim back, and any you can't?
What it draws on
- Sales tax on invoices is right for the place and the item. COSO Control Activities, principle 10; SOX: Indirect tax accuracy.
- Tax on purchases is claimed only where it can be. COSO Control Activities, principle 10; SOX: Indirect tax recovery.
- Contractor payments are reported. COSO Control Activities, principle 10; SOX: Information reporting compliance.
- Filings match the books and are made on time. COSO Information and Communication, principle 13; SOX: Tax compliance calendar and reconciliation.
- Period-end close is complete and timely. COSO Information and Communication, principle 13; SOX: Period-end financial reporting process.
What it needs
- the states you operate in and the filings you make, the two questions asked first
- your sales invoices and bills, with their tax lines
- your filings, and the tax report from your accounting system
- your tax accounts in the books, for each filing to match against
- Connections, optional: QuickBooks or Xero, which bring the invoices, bills and tax accounts. A tax report and a filing are enough to start.