Page 18 - Internal Auditor Middle East - December 2017

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EMAIL the author at ashraf.masadeh@etihadrail.ae Internal Audit

# What should be happening? (Audit Criteria) What Auditor needs to know (Rational)
1 All sources of sales and other revenue should be · Most of the supply of goods and services will be subject to a standard rate of 5%.
carefully analyzed and categorized according to · Some sectors will be subject to zero-rate such as education and basic health care supplies.
the relevant VAT category. Exports should be
segregated from local sales. · Few sectors will be exempted, such as residential properties, local passengers transport, and
some financial services.
· Exports will be zero-rated.
2 Business should register with FTA when they · Registration threshold is AED 375,000. Threshold should be calculated based on the total tax-
reach the threshold defined by the VAT regula- able sales of the current month, plus the previous 11 months.
tions. · A Tax Return needs to be submitted on a quarterly basis or less as required by the law.
3 The impact of risks and opportunities related · Tax strategy should be designed and optimized according to many factors such as the nature
to VAT implementation should be assessed, of business, sensitivity of sales to competition, associated risks, business jurisdiction, business
and appropriate VAT implementation strategies relationship with other GCC countries.
should be implemented. · Holding companies should consider the group registration with FTA. It simplifies the record-
ing of internal transactions and helps in optimizing cash flow.
4 Procurement plan and commercial strategies · It is always recommended to deal only with registered vendors, because only registered enti-
should be reviewed and updated to reflect op- ties can provide tax invoice, which is essential to recover any VAT paid.
portunities for cost savings through optimizing · Procurement needs to request for a VAT registration certificate as part of the tender submittal
the VAT implementation documents.
· Vendor master files should be updated with the VAT registration numbers.
5 Legal should review the standard form agree- · To avoid any dispute, it is important to update the standard form agreements with the rel-
ments to ensure the inclusion of the VAT evant terms to define the party responsible for VAT invoicing, payment, and reporting.
relevant terms to protect the business. · Legal should also review and amend all valid contracts signed before implementing VAT
where delivery of goods will continue after the 1st of January, 2018.
6 IT systems and Enterprise Resource Planning · IT systems and ERP solutions in place should be assessed to identify the level of customiza-
solutions (ERP) in place should be reviewed and tion required to accommodate VAT. This will vary from business to business based on the
updated to accommodate VAT requirements. complexity of the IT architecture in place.
· Timely and accurate reports need to be generated to be able to fill the Tax Return with the
required data.
7 Business should be able to analyze and accu- · Only VAT paid on sectors subject to VAT can be recovered back. Business will bear any VAT
rately calculate the recoverable VAT paid on cost paid on exempted sectors.
of goods and services. · For VAT paid on shared expenses such as marketing and adverting, only the portion paid on
sales subject to VAT can be recovered.
A proper mechanism should be defined to
precisely identify the recoverable portion of VAT
paid on shared expenses.
8 Financial policies and procedures need to be · Business must keep invoices, accounting records and commercial books, and any tax related
updated to address the VAT compliance require- information for a minimum of five years. Details of records will be specified by the Executive
ments. Regulations of the TAX Procedure Law.
· Tax Return, data, information, records and documents related to Tax should be submitted to
FTA in Arabic only
9 A compliance framework should be developed Depending on the size of the company and the complexity of transactions, a compliance role
to ensure the readiness and accuracy of records could be defined to deal with the VAT related issues, ensure compliance with laws and regula-
and Tax Returns submitted to the Tax Authority. tions, coordinate with other departments, and follow-up with the FTA.
10 Proper awareness and training programs should The VAT implementation team should possess proven experience in designing, implement-
be provided to employees to help them under- ing, and testing a VAT implementation process to ensure the timeliness, accuracy and cost
stand and deal with VAT in their day-to-day effectiveness of implementation.
activities.
THE WAY FORWARD from one CAE to the next, it is foregone noncompliance with laws and regulations.
Once VAT has gone live, businesses will conclusion that Internal Audit will have a Bearing all this in mind, we, as the audit
be responsible and accountable to comply critical role to play in this changing regula- community, must ensure that we train
with VAT regulations by collecting VAT, tory and business environment whether ourselves to grasp the necessary details and
that is by providing pro-active and preven-
maintaining accurate accounting records, tive consulting services at the initial im- nuances of the new VAT regulations and
and filing a tax return on time. their impact on our duties and responsibil-
plementation phase or by doing post event ity.
While the level of Internal Audit involve- audits. This role should continue to assure
ment in the VAT implementation process the Board that the business is not paying BY: ASHRAF MASADEH, MSC, CIA, CRMA,
may vary from business to business and excessive VAT or incurring fines due to CF

16 INTERNAL AUDITOR - MIDDLE EAST DECEMBER 2017