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  • Alignment of tax and accounting outcomes

    We analyse the differences between the accounting and tax results. This includes understanding the effective tax rates and effective tax borne. We seek to understand and be able to explain any variances between tax and accounting outcomes. This provides an objective basis to obtain greater assurance.

    Ratings

    We apply a consistent rating system when reviewing and assessing the alignment of tax and accounting outcomes, which is outlined in Table 4.

    Table 4: Rating categories alignment of tax and accounting outcomes

    High

    We understand and can explain the various streams of economic activity and why the accounting and income tax results vary.

    Medium

    Further analysis and explanation is required to understand the various streams of economic activity and/or why the accounting and tax results vary.

    Low

    We identified concerns from our analysis of the various streams of economic activity and/or why accounting and tax results vary.

    Red flag

    We do not understand and cannot explain the various streams of economic activity and/or why accounting and tax results vary.

    The reviews completed to the end of January 2019 resulted in the following ratings as outlined in Graph 4.

    Graph 4: Alignment between accounting and tax results

    Graph 4 shows alignment between accounting and tax results is 88% high, 9% medium, and 3% low.

    Observations

    We generally obtain high assurance over reported income and expenses as most taxpayers have audited financial statements and we are able to review the reconciliation between financial statements with the starting profit and loss disclosed in the relevant tax return.

    This is more challenging for MEC groups, foreign bank branches and stapled groups. We are also generally seeing good procedures for calculating taxable income from accounting results.

    It is important to note that the ratings for this focus area do not include those issues or transactions which have been separately rated in review. This results in overall higher ratings in this focus area.

      Last modified: 30 Jul 2019QC 59607