Six areas SARS will look at when they audit you
If there's one thing I know about SARS auditors it's this: The longer they take to search your offices for what they need, the longer they'll be there. And chances are, they'll uncover more than what they were looking for (and the higher your penalties will be).
Don't take that chance.
If you don't want this to happen to you, keep reading to see the six areas a SARS auditor will review in an audit.
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A breakdown of the six areas SARS will look at
Item #1: Tax returns: What the auditor will look for
The auditor will look at any adjustments you've made, and allowances you've claimed. He'll check these to make sure you've made the adjustments and allowances correctly.
He'll also check any information you include in the tax return but doesn't reflect in the income statements.
The Practical Tax Handbook has a checklist you can use to see what your income statement reveals about you.
Item #2: Five income statement traps to avoid
The auditor will review your income statement and any notes you've made. In particular, he's going to check the expenses you claim are allowed i.e. you're not trying to claim deductions on expenses not made in the production of your income.
He'll also look at inter-company transfers and charges. Some companies use these to try lower their tax burdens illegally, so he's going to scrutinise this.
Item #3: Five balance sheet risk areas
The auditor will analyse your balance sheet and any attached notes or documents. He's going to keep an eye out for:
Reserves/provisions, to check that you've treated increases and decreases correctly.
Large increases to shareholders' credit loans accounts. He'll want to know how the credit loan was financed.
Unproductive assets e.g. vacant property. If you're declaring non-allowable expenditures from these assets, he wants to know about it.
All bank accounts have been accounted for correctly.
Any borrowings for the year. You must have declared these correctly. If interest paid is deductible, he'll check that you're deducting fairly.
The Practical Tax Handbook has a checklist you can use to assess the risk areas on your balance sheet.
Item #4: Watch out for any inconsistencies in your tax returns
The auditor will go back to your tax returns to scrutinise the General Parts. He'll check the information here against the information in your financial statements, tax returns (including any IT14SD submitted) and calculation of taxable income to make sure you've done everything right.
Item #5: Five signs that your statement of assets and liabilities doesn't tally up
The auditor will check your statement of assets and liabilities (ITR12). He's going to check that:
The Practical Tax Handbook has a checklist you can use to see what risk areas pollute your statement of assets and liabilities.
Amounts are stated at the historical cost price i.e. no revaluations, for purchased assets
There is no possible undisclosed income listed for income generating assets listed.
Any significant changes in net worth are compared to that of the previous year.
Tax clearance was obtained for any amounts taken offshore.
Item #6: Four maths checks you must make
The auditor will go through how you calculated your taxable income very carefully. He's checking that you're not trying to avoid taxes or trying to score with tax deductions and allowances that you're actually not eligible for.
The Practical Tax Handbook gives you a full list of all the areas he'll check your maths on.
P.S. I've found a way for you to take control of your company's finances and receive all your tax refunds back from SARS. Here's how...
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