CLIENT:
AUDIT PROGRAM
___________________________________________________________
PERIOD:
___________________________________________________________
SUBJECT:
DEFERRED TAXATON
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
AUDIT OBJECTIVES
To determine whether:
A.
B.
C.
Deferred tax liability/asset represents obligation/asset
of the company as at the balance sheet date and have
been properly recorded.
Deferred tax is properly described, classified and
adequate disclosures have been made in accordance
with the requirements of the Companies Ordinance,
1984 and IAS-12.
Deferred tax amounts have been adequately
calculated, recorded and disclosed/classified in the
financial statements.
SUBSTANTIVE PROCEDURES
1. Deferred Taxation
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
Obtain a deferred tax working schedule from the
client alongwith related disclosures for current and
prior periods. Match and cross-refer with the relevant
sections of the working paper file.
Obtain schedule of temporary differences at balance
sheet date alongwith the supporting details.
Obtain schedule of tax base of each component of
balance sheet alongwith working.
Determine and ensure the consistency and adequacy
of method used.
Review and test the cumulative temporary differences
as of the balance sheet date.
Review the scheduled reversals of cumulative
temporary differences and determine whether all
identified temporary differences have been scheduled
in a reasonable manner that is consistent with
information obtained in other audit areas.
Obtain management's representations regarding
scheduled reversals, if appropriate.
Test the computation of deferred tax liabilities/assets
by applying appropriate provisions of enacted tax law
to scheduled reversals particularly the tax rates
applicable at the time of expected reversals.
Review the client's tax-planning strategies that affect
the recorded amounts of deferred taxes under the
liability method and determine that all valid strategies
that could materially affect deferred taxes have been
identified and accounted for.
Page: 1/4
O/AP/2
By
Comments/Explanations
CLIENT:
AUDIT PROGRAM
___________________________________________________________
PERIOD:
___________________________________________________________
SUBJECT:
DEFERRED TAXATON
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
1.10
1.11
1.12
1.13
1.14
If appropriate, obtain management's representations as
to their ability and intent to implement the strategy if
necessary.
Determine the strategy's compliance with the tax law.
If the client’s aggregate temporary differences (rather
than preparing a detailed schedule of reversals),
determine whether the aggregate approach produces
materially different results. [However, if no major
changes are expected to occur in the tax rules/law and
the tax rates are not expected to be changed in future,
aggregate working would be sufficient].
Determine whether deferred tax assets and liabilities
are properly classified as to current or non-current
based upon work performed in testing the deferred tax
provision/credit.
Review and test the cumulative temporary differences
as of the balance sheet date.
2. Presumptive Tax
2.1
2.2
2.3
2.4
If the total income is covered under presumptive tax
regime (under Section 153 and 154) no deferred tax
should be accounted for.
Where a portion of income is covered under 153 and
154, ensure that reasonable estimate for sales is made
relating to “non-supplies” for future year based on
past trend.
Check that deferred tax liability relating to nonsupplies has been made accordingly after considering
reasonability of the estimate made.
Ensure that proper disclosure is made in accounts
where it is impracticable to develop a reasonable
estimate of “non-supplies” in future.
3. Tax Losses and Credits
3.1
3.2
Ensure that loss for current year/prior year (pending
assessment) taken for deferred tax computation should
be based on the estimated amount of loss, which is
likely to be assessed by the tax authorities. Disclosure
to be made distinctly of the fact.
In case of revaluation of fixed asset ensure that the
requirement of Accounting TR-10 have been followed
for calculation of deferred tax.
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O/AP/2
By
Comments/Explanations
CLIENT:
AUDIT PROGRAM
___________________________________________________________
PERIOD:
___________________________________________________________
SUBJECT:
DEFERRED TAXATON
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
3.3
3.4
3.5
3.6
3.7
3.8
Has the client prepare an analysis of loss carry
forwards (book and tax) available at yearend. Verify
the clerical accuracy of the analysis and ensure that
loss carry forwards utilized to offset current year
taxable income have not expired.
Summarize financial statement disclosures related to
loss carry forwards.
Tax losses should be segregated between losses on
account of depreciation and trading losses and give
priority of set off against the profit accordingly.
Has the client prepares an analysis of significant tax
credit carry forwards for book and tax purposes and
compare amounts utilized to offset Federal income
taxes with amounts available. Verify the clerical
accuracy of the analysis.
Examine detailed support for tax credit carry forward
calculations. (Scope: __________.)
Update the carry forward schedule of tax credits (both
book and tax), as appropriate.
4. Deferred Tax Asset
4.1
4.2
Ensure that deferred tax asset recognizing tax saving
is not required to be set up if a reasonable estimate of
turnover/profits for foreseeable future cannot be made
(refer paragraph 1.4 of ICAP selected opinion No.1).
Deferred tax asset should not be accounted for unless
it can be ensured with reasonable surety that future
“tax profits” will be available for realization of such
assets and the management will be able to plan its tax
strategies in a manner to obtain benefit of such assets.
[Note: Such future income should be enough to cover
the future deferred tax assets (deductible temporary
differences) first and any remaining future income
should be applied to assess the realisability of
deferred tax assets.
Other tests as deemed necessary
Page: 3/4
O/AP/2
By
Comments/Explanations
CLIENT:
AUDIT PROGRAM
___________________________________________________________
PERIOD:
___________________________________________________________
SUBJECT:
DEFERRED TAXATON
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
O/AP/2
By
Comments/Explanations
Management Letter
Prepare management letter points including:
 Internal control weaknesses;
 Business improvement opportunities;
 Legal non-compliance;
 Accounting system deficiencies; and
 Errors and irregularities not material at the
financial statements level.
Disclosure
Ensure appropriate disclosure have been made in
accordance with the reporting framework and fill
relevant portion of Financial Statement Disclosure
Checklist (FSDCL).
Supervision, review and conclusion
1.
2.
3.
4.
Perform Senior review and supervision.
Resolve Senior review points.
Resolve Partner and Manager review points.
Conclude response to the audit objectives.
Audit conclusion
Based on the substantive test procedures, I/we performed as outlined above, it is my/our opinion that the audit objectives set forth at
the beginning of this audit program have been achieved, except as follows:
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
Date:____________
______________
Signature
___________
Job Incharge
Page: 4/4
________
Manager
_______
Partner