Compliance challenges in financial compliance have never been greater. Whereas firms once assessed regulations or mandates in isolation, new enforcement and data analytics tools require them to adopt a different perspective.
The CMVS audit guide includes six appendices that reference legal precedent, current law and Treasury regulations to help document your policy regarding whether to capitalize or expense repair costs and document any change in accounting method (CAM). Field examinations may use these appendices as resources in challenging deductions made during field exams.
Unraveling Financial Compliance
Compliance can seem like an intimidating maze of regulations and policies for financial professionals to navigate; however, having a thorough knowledge of them can help them meet their obligations to avoid fines, penalties or reputational harm.
Financial compliance refers to an umbrella of laws and regulations designed to promote transparency, integrity, operational efficiency and customer protection within financial markets and banking systems while safeguarding customers, investors and society at large from misconduct, fraud, market manipulation, ethical threats or systemic risk.
Financial firms must comply with numerous requirements related to GSBA compliance, GLBA compliance, Sarbanes-Oxley Act regulations and other finance industry regulations. Thankfully, there are similarities among regulatory mandates which can help ease implementation of complex compliance changes.
Accounting
Financial accounting aims to gather business transactions and present them in an easily digestible format. It involves creating and maintaining accurate accounting records such as general ledger, cash disbursement journal, checks vouchers warrant register and employee approval procedures that adhere to generally accepted principles of accounting.
Investigate the chart of accounts to ascertain which accounts constitute Gross Sales. Evaluate how the taxpayer reports tax on sales and deductions, verifying any claimed deductions with documentation such as resale, exemption or direct payment certificates. Finally, conduct an audit on whether their certificate file is up-to-date and in good standing.
Examine the coding scheme and employee approval procedures utilized for allocating invoice charges to general ledger accounts. Sampling procedures are usually employed when dealing with large volumes of taxable purchases requiring stratification. Evaluate all expenses items, noting any unreported taxes paid or accruals accrued that should be included as audit adjustments.
Tax
This upper-level substantive course explores civil tax procedures in greater depth. Topics covered include preparation and filing of returns; withholding and information reporting; administrative determination of liability, penalties and interest; IRS audits and summonses; judicial review for statute of limitation mitigation purposes; collection/tax liens etc.
Auditing total sales is an integral step to any audit. Summarized records should accurately reflect a taxpayer’s method of accounting; revenue accounts charts can help reveal which accounts make up reported total sales; cash receipts should show whether cash received from taxable sales has been allocated correctly to sales or revenue accounts;
Usually, deductions are examined along with gross sales; however, in certain cases it may be necessary to tailor the procedure to reflect how a taxpayer reports deductions.
Audit
Tax audits are independent examinations of a taxpayer’s financial information by an impartial examiner, who then assesses its compliance with tax law and may issue a tax return based on that examination. Examiners are bound by generally accepted accounting principles as set by Internal Revenue Service, Securities and Exchange Commission or other government bodies to conduct this examination properly.
Audits begin by reviewing a taxpayer’s certificate file to see whether all certificates issued to them are up-to-date and complete; if not, time should be given for them to obtain these documents prior to an audit being completed.
As part of a comprehensive sales audit process, a reconciliation should take place between reported sales on a tax return and audited sales from books and records. This should involve performing short tests to verify that summary records reflect accurately how taxpayers report. Furthermore, an examiner should review general journal entries and cash receipt journals for evidence of unreported taxable sales.
In conclusion, navigating the intricate landscape оf financial compliance, accounting, tax, and audit procedures demands a keen understanding оf regulations and meticulous attention tо detail. Compliance with laws and regulations іs essential tо uphold transparency, integrity, and operational efficiency іn financial markets. Accounting practices ensure accurate recording and reporting оf business transactions, while tax procedures require thorough adherence tо tax laws and regulations tо avoid penalties. Audits serve as a vital mechanism tо assess compliance with tax laws and ensure the accuracy оf financial information. By staying informed and implementing robust procedures, financial professionals can effectively navigate the complexities оf accounting, tax, and audit processes, safeguarding both their organizations and stakeholders.