Page 17 - Internal Auditor Middle East - December 2017

Internal Audit

the last quarter of 2017 and businesses share, Boards are showing less tolerance in ent risks should be assessed and linked
that meet the registration threshold should accepting risks, which may result in losing with the overall strategic objectives and
register by the end of the year. revenue or increasing cost. VAT money will with the operational business plans. Con-
New compliance requirements will be belong to the government, so any errors trols should be evaluated and documented
introduced. Key accounting records will be made due to an inaccurate implementation
mandatory for businesses with a certain an- of VAT will leave the businesses vulnerable, to identify the residual risks.
nual turnover. Tax auditors will be visiting losing a portion of their profit or paying After conducting the typical risk assess-
businesses to audit their revenue, operating hefty penalties. ment, a quick comparison between both
expenses, contracts, and inventory. Atten- the previous year and current year heat
tion will be given to every detail, such as all Depending on the existing level of exper- maps will clearly indicate the impacted
types of discounts, gifts, production waste, tise within the internal audit department
bad debt, and bonus paid to agents… etc. resources, CAEs should plan their involve- functions, processes, and systems where
Businesses can get ready for these changes ment by either providing a proactive con- assurance needs to be provided. The scat-
and challenges in the business environ- sultancy service to help assess the risks and tering of risks will help the CAE in defining
ment by implementing a proper VAT controls at an early stage, or by deciding to the processes and systems to cover, the
readiness project. VAT preparation and be involved at a later stage by conducting scope of audit, and the audit approach.
implementation is not a simple process that post-implementation audits.
can be accomplished by just adjusting the There are various options on how a VAT
accounting systems. In fact, it is a much According to the standard 1210.C1 (Profi- audit can be scoped. The VAT preparation
wider process that needs a great deal of ciency) of the IPPF, project can be covered as a single audit
work and preparation in most of the busi- The chief audit executive must decline the assignment of the entire project. Or, two
ness functions, including the commercial consulting engagement or obtain competent or more linked areas could be covered to-
planning, procurement, sales, finance, IT, advice and assistance if the internal auditors gether, such as Procurement and Contracts,
and customer service activities. lack the knowledge, skills, or other compe-
As a result, it is important to deal with this tencies needed to perform all or part of the Commercial and Sales, Account Payable
task as a structured project. A task force and Sales. The CAE may also decide to
should be formed to oversee this project engagement. audit the VAT readiness indirectly, as part
and to ensure the proper implementation If the latter decision is taken, the CAE can of the regular audit of relevant processes
of the tax strategy, systems, and processes still use the golden opportunity of partici- (i.e. sales, finance, procurement, and
right from the beginning. This task force pating as an observer within the task force. legal… etc.). However, this approach is not
should include members from various This will give Internal Audit a great deal of favorable because of the delay in report-
departments chaired by an expert. During exposure in understanding the mechanism
the implementation project, all associated of implementing VAT, as well as changes ing VAT weakness, which could take years
VAT risks should be methodically assessed depending on the audit cycle.
and accounted for to avoid any future within the existing systems and processes, Audit objectives should focus on ensuring
surprises, as well as to minimize the cost project deliverables, and associated risks that effective and efficient internal controls
of implementation and to optimize future and controls. Taking part will also help the
compliance. CAE in planning and phasing the future are designed and implemented to comply
assurance audit, as well as identifying the with VAT regulations and to respond to
“Internal Auditors scope and objectives of future audits. In the urgent changes without interrupting the
meantime, the internal audit team should
business operations.
are expected to add start building and shaping their knowledge DO YOUR HOMEWORK & ASK SMART
value by providing an by attending VAT-related trainings and QUESTIONS
seminars.
In order to reach accurate conclusions and
objective assurance to provide valuable reports to shareholders,
on the adequacy “VAT preparation and internal auditors should be able to define
the appropriate criteria against the controls
and effectiveness of implementation is not to be assessed. That usually goes at the
beginning of most of our audit reports as,
the internal controls a simple process that “What should be happening?”
and governance can be accomplished Given below are some key technical audit
criterions that can help in auditing or pro-
arrangements by just adjusting the viding consultancy on the VAT readiness
implemented in the accounting systems.” project. Next to each criterion is the ration-
ale to help understand each criterion. It is
project.” AUDIT PLANNING FOR VAT RISKS important to highlight that this table covers
the overall process and is not necessarily
To plan for VAT risks, CAEs need to take detailed enough to fit all entities. Auditors
PROACTIVE, NOT REACTIVE! them in consideration when they reassess should adapt in line with the nature of their
In today’s highly competitive market where their business and control environment business, systems in place, and complexity
businesses are fighting for their market and update their risk universe. VAT inher- of transactions.

DECEMBER 2017 INTERNAL AUDITOR - MIDDLE EAST 15