For around the past one month, virtually all practising chartered accountants have been discussing the revised form of the tax audit report. The form underwent a change by virtue of a notification dated 25th July 2014. The changes in the form were in line with thinking of the tax department which is – shift the onus and the responsibility to assessees or the hapless professionals ! Assuming that the changes were necessary to facilitate assessments, it would have been appropriate to make them from the next assessment year so that both assessees as well as professionals would have geared up for compliance. That not having been done, the representations, including one from the Society were made to the authorities. The concern regarding the 30th September deadline has been partially addressed by the circular of the CBDT on 19th August 2014, extending the date for obtaining and furnishing the tax audit report to 30th November 2014.
Tax audit has been in existence for more than three decades but there appears to be no clarity in regard to the role of the auditor in the minds of the assessee or the auditor himself. Similarly, there is confusion about the scope and purpose of the tax audit in the minds of the tax authorities. When the concept of tax audit was introduced in 1984, the stated objective was to ensure proper maintenance of books of account, reflection of true income of the taxpayer and facilitate assessment. At that time, the role of the tax auditor was restricted to that of expressing an opinion on the true and fair view of the accounts and authenticating the correctness of the particulars prescribed. Over a period of time, a large number of clauses have been added to the report which require, compilation and consequent verification of exhaustive details, as well as expression of opinion on a large number of aspects which involve interpretation of both the Income-tax Act as well as other tax laws. The professional therefore has two roles to perform one that being that of an auditor and the other being that of a tax consultant/advisor/expert. These roles may not necessarily be in sync and could be in conflict with each other.
The problems that arise are for two reasons. Given the threshold prescribed for tax audit, a large spectrum of the business organisations/ assessees who require to get their accounts audited do not have the requisite wherewithal to compile comprehensive accounts and data that is required for the purpose of the tax audit. Consequently, at every stage in this process, a tax auditor is involved in varying degrees. In addition, he normally performs the role of tax advisor to the organisation. This means he is to ensure compliance with tax laws as well as ensure the minimum tax liability for his client. This requires that he wear different hats. The challenge is in understanding that he can wear only one hat at a time and in making a client understand this position.
When he undertakes the role of an auditor, he must in his mind accept that he is performing his duties as an independent person. He will have to express an opinion on the accounts as well as the correctness of the particulars, without letting the fact that he is also the tax advisor, colour his mind. Even if his expression of opinion may have some adverse consequences for his client, he will have to perform that task with the requisite diligence. When he represents his client’s case before the tax authorities he is performing this task as a counsel, and is entitled to urge the assesee’s case, on the basis of views held by the assessee. To my mind there is nothing wrong for an auditor to hold one view while conducting audit, but to canvass the other view before a tax authority as while he does so he is the authorised representative for his client. I am conscious that this is easier said than done. It is this role definition that is extremely important. If a professional permits these two roles to converge he will not be able to do justice to either of them.
As far as the business organisations are concerned, they must appreciate that the prime responsibility of maintenance of accounts and preparation of particulars for tax audit is their responsibility. The work of compilation can be outsourced and not the responsibility. The responsibility of carrying out a verification of the accounts so maintained and the particulars so compiled is that of the auditor. The auditor needs to emphatically state this and the auditee needs to be appreciate it.
The problem is compounded by the mind set of our professional colleagues. We tend to associate with our clients to an extent that it can causes discomfort. I have seen that many chartered accountants fight shy of making a remark in their audit report, for they believe that should they do so, the client will be affected in a tax proceeding. This is because we tend to hold ourselves responsible for the problems of the client, when more often than not the problem is the client’s own creation. We should advise a client to take the requisite steps to avoid recurrence of the problem, but if it has occurred we need to report.
While this is the case with auditors and auditees, the lawmakers must also decide what they want from a tax audit. While requiring an auditor to ensure that the accounts show a true and fair view and that the factual particulars prescribed are correct, to ask an auditor to express an opinion on interpretation of a provision is requiring him to act as an expert. Doing so will be merging the roles of an auditor and a tax expert. If this is so, then those opinions expressed need to be respected unless they are perverse or are contrary-a judicial precedent. When an officer disagrees with an opinion expressed by the tax auditor, it should not be done perfunctorily and the officer should record detailed reasons for the same. One often finds that the tax audit report is dealt with casually.
If this position changes, it will change the perspective of both, auditors and the organisations they audit. If the tax audit exercise is to become more meaningful to business organisations whose accounts are audited, useful to the tax department which relies on the report, and less stressful to chartered accountants, there will have to be a change in attitude and perspective of all stakeholders. Let us hope that Lord Ganesha whose festival we are celebrating, blesses all concerned with the requisite wisdom to do so.
