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CMI Exam > Overview - Audits > Flashcards

Overview - Audits Flashcards

1
Q

What are the 11 steps of an audit process?

A
  1. Getting selected for an audit
  2. Auditor assignment/pre-planning
  3. Taxpayer notification process
  4. Taxpayer pre-planning
  5. Initial conference
  6. Performance of audit
  7. Audit documentation
  8. Final conference
  9. Final review/assessment processing
  10. Administrative appeal
  11. Judicial appeal
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2
Q

What are the 2 purposes of audits?

A
  • Collect unpaid taxes
  • Promote compliance
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3
Q

What are the 10 most common reasons your company will get selected for an audit?

A
  • Random
  • Articles about your company in the news
  • Construction reports (these reports are public knowledge and are used by the DORs)
  • Utility exemption applications (some states require you to submit an application to get the exemption which in turn brings attention to your company)
  • Nexus investigations
  • Targeted industries due to law changes
  • Filing a large refund claim
  • “Pick-up” audits (companies related to other companies that are currently going through an audit, noticed during drive-by of new construction site, etc)
  • Audit referrals (made by employees of the DOR, disgruntled former employees of the company, competitors, etc)
  • Cyclical audits
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4
Q

What are 3 things that will happen in the auditor assignment/pre-planning stage of an audit?

A
  • Initial notification/Confirmation letter
  • Research the company, their industry, their reporting history and their prior audits
  • Determine SOL
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5
Q

During which phase of the audit process are documents requested, audit period and tax types determined, and date/time of the initial conference is given.

A

Taxpayer notification process

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6
Q

What are things that should happen during the taxpayer pre-planning stage of the audit?

A
  • Assign staff/Determine roles
  • Gather requested documentation
  • Review reporting history, exemption certs, SOL, and prior audits
  • Reserve meeting space for auditor to work
  • Ask auditor any questions you might have
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7
Q

During the entrance/initial conference phase of the audit, what are the responsibilities of the auditor vs the taxpayer?

A

Auditor
- Discuss scope of audit, taxpayer’s business ops, types of customers, accounting system, reporting prep process, availability/location of records
- Verify taxpayer account info
- Conduct plant tour

Taxpayer
- Ask questions
- Provide thorough explanations/answers
- Arrange a plant tour
- Discuss which audit method will be used: Sample vs Detail

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8
Q

What is the difference between a detailed audit and sampled audit?

A

Detailed
- 100% review of invoices
- Time-consuming
- Accurate
- No sampling risk

Sampled
- Opposite of detailed
- 2 sampling methods (Non-random and Random)
- Non-random
- Block/Cluster: Based on week, month, and account
- Random
- Simple Random
- Interval
- Stratified

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9
Q

What are the two types of methods used in sampled audits and what are they different types of each?

A
  • Non-random and Random
    - Non-random: Block/Cluster sampling
    - Random: Simple, Interval, Stratified
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10
Q

Before a sampled audit occurs, what are 6 steps you should take in regards to your data and company records?

A
  • Confirm dates in data matches audit period
  • Account for system changes
  • Determine fields to include
  • Analyze and understand your data
  • Perform control checks (GL vs TB, Data vs Returns, etc)
  • Ask auditor how missing records and negative transactions will be handled
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11
Q

What are things that should happen during the “performance of audit” phase of an audit?

A
  1. Plant tour
  2. Review of records
  3. Discuss audit discrepancies
  4. Request additional time to provide info (if needed)
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12
Q

What are 7 common types of SALES documentation you might need to provide to the auditor?

A
  • Daily cash register tapes
  • Sales invoices/journals/recaps
  • Sales tax returns/schedules
  • Sales reports by jurisdiction
  • Financial statements
  • Federal Form 1120
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13
Q

What are 4 types of documentation that you might have to provide to the auditor that will serve as proof of exempt sales?

A
  • Exemption certs
  • DP permits
  • Interstate commerce documents (Invoice/PO/BOL/etc)
  • Anything else that proves exemption
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14
Q

What are 5 common types of PURCHASES documentation you might need to provide to the auditor?

A
  • Purchase invoices
  • POs/Contracts
  • P-card transactions/journals/recaps
  • Use tax returns/schedules
  • AP ledger
  • Fixed asset reports
  • Intra/Inter-company transfers
  • Financial statements
  • Federal Form 1120
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15
Q

What are 4 things that should happen during the final conference

A
  • Auditor will prepare final report
  • Understand the state’s process for creating it
  • Have final discussions with auditor
  • Understand the auditor’s adjustments
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16
Q

During the “administrative appeal” phase of an audit, the state’s legal division will issue a poisition letter and the taxpayer will have…… days from the date of that letter to either accept or reject. If the taxpayer rejects it, a…… must be filed.

A

45, Motion for rehearing

17
Q

True or false: A rehearing after an administrative appeal is usually granted by the state, even if the taxpayer has no new evidence to bring forward.

A

False, The Department will normally not grant a re-hearing for the rehashing of the first protest.

18
Q

What type of appeal occurs after administrative appeal and what are the 3 levels of it?

A
  • Judicial appeal
  • State Office of Administrative Hearings
  • State Supreme Court
  • US Supreme Court
19
Q

What is the formula for projection factor used in a sample audit?

A

Population taxable amount / Sample taxable amount

20
Q

What is the formula for projected taxable amount used in a sample audit?

A

Population taxable amount * Projection factor

21
Q

What is the formula for projected tax amount used in a sample audit?

A

Projected taxable amount * Tax rate

22
Q

When the auditor provides a schedule of all the transactions they will be pursuing (showing account number, invoice description, amount, vendor, etc) what are things to look for that will potentially get them removed from the auditor’s assessment list?

A
  • Invoice dates outside of audit period
  • Exemptions (Resale, mfg, etc)
  • Source document type (invoice, check, or statement)
  • Total that includes a tax amount (Ex. If total shows as $106, there’s a good chance the sale was for $100 and then a 6% tax was charged. This wouldn’t require an assessment if tax was already paid)
  • Coded to an account different than the type of account that’s being sampled (If the auditor adds a transaction to their assessment list for their review of expenses, and the transaction is coded to assets, you can have it removed)
  • Customer being an exempt organization

CMI Exam (35 decks)

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