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Advanced Auditing

Notes (iii) The auditor is also required to comment on the timely filing of the returns under the VAT
law. For this purpose the auditor is expected to list out the due dates of filing of returns
and find out the reasons for delay in filing the returns if any.
(iv) The auditor is also required to give his report on the composition scheme. He should
apply such compliance tests as will be enable him to ascertain that the auditee is eligible
for composition, it has paid the requisite composition fee and all the procedural formalities
in relation thereto have been complied with.
(v) The auditor has to give his report on the TDS. Therefore, such tests are to be applied as will
enable him to report on the applicability of TDS provisions, the accuracy of the amount
deducted and paid, timely issue of TDS certificate and filing of TDS returns.

(vi) The auditor is also expected to check the consolidation of the returns filed for all the
periods covered in the year under audit, both under the State-Level VAT law and the
Central Sales-tax Act, 1956. These returns are to be compared with the books of account
and the documentary evidences available. The auditor is expected to apply such substantive
steps as would enable him to judge whether all the transactions relating to sale and
purchase are entered in the books of account and have been taken into consideration while
filing the returns. In case of any inconsistency a proper reconciliation of book figures and
the returned figures should be made and also the correct quantification of tax liability is to
be done.

The above are only the major areas which are to be tested by the auditor while conducting the
tax audit under VAT laws. The auditor has to take a judgement of his own regarding the adequacy
and appropriateness of the audit checks to be applied and the areas where the tests are to be
applied, so as to give him all the information needed to form a view not only on the authenticity
of the books of account, correctness of the returns filed but also in the quantification of tax
liability.

13.1.5 Audit Report under the VAT Law

All State-Level VAT laws have been framed by following a common VAT law Module suggested
by the Central Government. Further the Empowered Committee which pioneered the concept
of model VAT law based on certain common principles also insisted that the basic framework of
all the VAT laws in the various States should be common. It is felt that there should be a common
design for VAT Audit Report also so that the auditor should not find it difficult to conduct the
audit and the reports can be made more meaningful and comprehensible to all. The Institute of
Chartered Accountants of India has already taken a major initiative in this direction and has
already developed a standard format of the audit report. The standard format of audit report
was also submitted to the Empowered Committee. States can take the benefit of the same and
incorporate the format of the audit report suggested by the ICAI in their VAT laws.
At the end of the audit the auditor has to arrive at his conclusion on the matters to be reported
in the audit report. The format of the audit report is generally prescribed under the relevant
VAT law and the auditor has to fill in all the columns of the audit report that are applicable.
While performing the audit under VAT law the auditor is expected to conduct the audit presuming
himself to be the tax assessor. His audit report will therefore have to be comprehensive
commenting on each and every aspect which goes to the root of quantification of tax liability.
The auditor is expected to give his opinion on the adequacy of accounting records, correctness
and completeness and arithmetical consistency of returns filed. Further he has to State the basis
of his opinion on the accounts, financial statements and the documents verified by him to arrive

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