Tax assurance Flashcards
The Fraud triangle:
Opportunity
Realization
Pressure/motivation
Fraud
Illegal practices by, for or against corporations, by insiders or outsiders, to achieve a gain or to avoid losses
Types of corporate fraud:
Asset misappropriation: 85% of the cases →145 thousand / usd per case
Corruption: in 37% of the cases →354 thousand / usd per case
Financial statement fraud:
in 8% of the cases →1,6 million / usd per case
Who gets hurt for corporate fraud
Shareholders: less profits (fraud against the company)
Suppliers: Default
Clients: Defective/lower quality products and services
Employees: jobs losses, less benefits
Tax administration: collect less taxes
Tax payers: Pay more taxes
Accounting standards/principles
Financial statement must:
1) represent a ‘true and fair’ view of financial position and income of the company
2) be produced in accordance with generally
accepted accounting principles
Audit standards
Auditor must verify inventory, talk to creditors, debitors etc.
External auditors had to be chosen by board members, not engaged in the companies management
Report directly to shareholders
Internal controls
introduced the obligation to disclose and audit the internal controls to all listed
companies in the USA;
* independency of auditors;
* harsher penalties for frauds (up to 20 years in jail);
* C-level must:
osign off the financial reports;
opresent their conclusions over the internal controls of the company;
oreport significant deficiencies in the internal controls.
* Independent auditor must attest the CEO/CFO assessment of the internal
controls.
What are internal controls
Processes, procedures, rules put in place to assure that objectives of the company are accomplished.
where must internal controls look at
At all levels, from individual functions to the whole entity
What will Internal Controls control? (Components)
- Environment within the company (‘tone at the top’);
- Risks that threat the company’s objectives;
- Activities that will be controlled (e.g. IT systems);
- Information and Communication;
- Constant monitoring of the Internal Controls.
Corporate Governance
a system by which companies are directed and controlled”. Regulatory framework →self regulation. The management (C-level) is accountable for the proper treatment of the risks.
Tax governance
a system by which taxes are directed and controlled within the company
Tax Control Framework
The section of the internal controls dedicated to control the tax risks derived from compliance, reporting and operations, and to ensure that such risks are aligned with the tax strategy of the company
Objectives of the tax control framework
Assure compliance with tax regulations:
(monitoring new tax regulations, IT systems)
To assure reporting of taxes:
taxes are an integral part of financial statements
To assess the operations (Taxable events):
the tax function must assess and determine which of the company’s operations constitute a taxable event
To establish the tax strategy of the company
(pay as little taxes no matter what)
(to pay as little taxes as possible without creating tax contingencies)
Tax assurance
Processes designed to assure that the tax positions expressed in the financial statements are reliable, free from material misstatements
Tax assurance comprises all tax results, derived from all tax-related processes within the company, and assess if those tax results are reliable, free from material mistakes.
