We conduct audits where we consider a more in-depth examination of the issue is required. Our audit program ranges from relatively quick examinations of source documents to more intensive analysis of complex arrangements and transactions. Whatever the issue, we will be transparent about our concerns. We seek your cooperation so we can complete audits as quickly as possible and give you certainty of your tax and super position.
Most audits are escalated from a review. However, where it is warranted we may proceed straight to audit without conducting a review. This may happen, for example, in cases where we suspect fraud or evasion, or where an arrangement or transaction is considered high risk.
When we contact you in an audit we want to establish a productive and professional working relationship built on transparency. We will be open with you about what has attracted our attention and provide you with an opportunity to disclosure errors and provide information where needed.
We will normally examine source documents to verify the accuracy of financial accounting information and the integrity of access controls within your systems.
Where our discussions with you and our analysis of relevant information are sufficient to address our concerns, we will end our audit and advise you of the outcomes.
See also
Typical audit process
In an audit, we will:
- phone to arrange a suitable initial meeting time
- follow up with written confirmation including a meeting agenda outlining key issues for discussion and a draft audit management plan.
At the meeting, we will be transparent about:
- the audit scope, the periods under audit and the expected completion date
- our risk hypothesis and information required to assess this hypothesis
- your choice of channel for providing information
- how we will conduct the audit, including key milestones and relevant guidelines
- the advantages of, and procedures for, making voluntary disclosures
- our expectations of you when we request information or records
- the circumstances in which you can expect us to use our formal access powers.
These discussions will be formalised in an updated audit management plan, which we will provide after the meeting.
The audit management plan will contain contact details of an executive level officer for you to contact.
During the audit
We will keep you fully informed of the audit’s progress. If we identify additional risks during an audit, we may broaden the audit's scope. We will advise you immediately if we decide to broaden the scope of an audit.
We will engage in ongoing and transparent communication with you as our view develops. At any stage during an audit, we are open to exploring opportunities for alternative dispute resolution as a cost-effective means of avoiding potential legal disputes.
Information gathering and record keeping
Your cooperation in being transparent and providing the full facts and supporting evidence quickly will help us determine our position and provide you with certainty as soon as possible.
Australian tax and super laws require you to keep records to support your claims. These records include documents that evidence an intention, election, choice, estimate, determination or calculation. For these purposes 'documents' include computer files and other electronic information.
The information we require varies from case to case. When we initially engage you, we will clearly outline our concerns and discuss our information requirements. To reach a position on complex matters, we may need to examine substantial amounts of information, including information that may be held by third parties.
Cooperative approach
We generally prefer to contact you prior to making our information requests using a cooperative approach. By working with you in this way, we can build good working relationships and minimise cost and disruption.
A cooperative approach does not usually involve the use of our formal powers. However, we may use our formal powers at the outset in certain higher-risk situations, including:
- where we are requesting information from third parties (including related parties)
- where you have no access or are being denied access to the information held by another party or third party
- cases involving potential tax avoidance
- where you have a history of not voluntarily providing the required information
- where you request that we use formal powers.
Our formal powers
Our formal powers fall into two broad categories:
- Notice powers – require you to give information, attend and give evidence or produce documents.
- Access powers – give us full and free access to places, books and documents. They also require reasonable assistance be given to our officers in exercising these powers. We will generally arrange the exercise of these powers with you in advance except in exceptional circumstances, such as where there is a reasonable suspicion of risk of destruction of documents or more serious breaches of the law.
See also
- Our approach to information gathering
- Taxpayers' charter – fair use of our access and information gathering powers
- Computer assisted verification: e-Audit and risk assessment
Determining and communicating our position in writing
During the latter stages of an audit it is our usual practice to provide you with a position paper that clearly explains our position and gives you an opportunity to respond before we finalise the audit.
A position paper sets out:
- the available facts (which we will endeavour to agree with you first)
- the issue/s
- your contention/s
- our application of the relevant law to the facts
- details of any proposed assessments arising from the audit
- details of who to contact to discuss the matter.
In determining our position we will research the law, taking note of any pre-existing ATO views. We will give full consideration to your position and supporting arguments.
Where we disagree with you, we will explain why and whether an alternative dispute resolution (ADR) process may assist in resolving the dispute. To help determine our position, we sometimes engage external experts such as industry specialists, valuers, economists and legal counsel.
In some complex or sensitive cases we may appoint a specialist or case leader to help resolve issues.
We will give you an opportunity to comment and we will consider your comments before making our final decision, including request for an independent review.
For large privately owned and wealthy groups with a turnover of more than $250 million we will consider requests for a Large market independent review - turnover over $250m prior to making our final decision.
If we intend to amend your assessment
If we intend to amend your assessment we will usually advise you beforehand.
In some higher-risk and limited circumstances, we may not contact you before assessments are issued. This might happen where there is the potential for dissipation of assets, or where such advice could compromise the investigation of another agency.
Finalising the audit
We will advise you of the audit’s outcome and finalisation in writing, generally within seven days of making our decision.
We will offer a final interview to discuss any penalties and interest charges if this is not included in the final position paper.
If we have concluded that penalties and interest charges should apply, we will tell you our reason and give you the opportunity to make a submission for reduction or remission of interest and penalties charges.
e-Audits
In the course of conducting reviews or audits, we may use computer assisted verification (otherwise known as e-audit) methodologies to assist us in analysing your electronic records. This can range from examining individual transactions to looking at your business and system processes as a whole.
Using e-Audit assists us in:
- analysing large amounts of data accurately and efficiently
- examining and understanding your business and systems and processes to help you comply with your tax obligations.
See also
When we contact you in an audit we want to establish a productive and professional working relationship built on transparency. We will be open and honest with you about what has attracted our attention and provide you with the opportunity to self-correct and provide information where needed.