Independent Audit and Tax Obligations?


My enterprise has the financial statements annually audited with unqualified opinion, but why there are still many tax-filing issues and additional tax liabilities of previous years found by the tax authorities?

Tax liabilities are items presented in the financial statements that are subject to the same risk assessment and audit procedures as other items of the financial statements. Besides, tax compliance is also reviewed by auditors to find out whether is potential significant tax penalties due to non-compliance or not. 

However, the audit materiality that is applied to each item in the financial statements (including tax liabilities) depends on the overall materiality of the financial statements, which is guided by the audit standards. Therefore, this audit materiality may make the scope of audit service very different from tax review service which is based on specific requirements of the enterprise. In addition, the interpretation of tax regulations may vary among tax authorities. For these reasons, the fact that tax authorities may have different conclusions about the tax items presented in the audited financial statements is not something unusual. However, if the difference is large enough causing material misstatements of the financial statements, it is the auditor’s failure when could not detect it. Such misstatements, when identified, will be retrospectively adjusted if material enough.