Three Standards in the Tax Audit Process 

JAKARTA, DDTCNews - Audits to assess tax compliance with tax obligations must be conducted according to audit standards. This is stipulated in the Minister of Finance Regulation No. 17/PMK.03/2013 concerning Procedures for Audit as last amended by the Minister of Finance Regulation No. 18/PMK.03/2021. (MoF Reg. 17/2013 in conjunction with MoF Reg. 18/2021).

The audit standards are used as a measure of audit quality and constitute the minimum achievement that must be achieved in conducting an audit. The said audit standards include general audit standards, audit implementation standards and audit finding reporting standards.

Pursuant to Article 7 MoF Reg. 17/2013 in conjunction with MoF Reg. 18/2021, general auditing standards refer to personal standards and relate to the requirements of tax auditors. Tax auditors conducting audits must fulfil the following requirements.

First, having received sufficient technical education and training and having skills as a tax auditor. Second, using their skills carefully and thoroughly. Third, honest and clean from disgraceful actions and always prioritising the interests of the state. Fourth, complying with various statutory tax provisions.

Further, pursuant to Article 8 of MoF Reg. 17/2013 in conjunction with MoF Reg. 18/2021, an audit to assess compliance with tax obligations must also be conducted according to audit implementation standards, which include the following.

First, the audit must be preceded by good preparation according to the audit objectives. Preparation at least includes collecting and studying taxpayer data, preparing an audit plan and developing an audit program as well as receiving careful supervision.

Second, the audit is conducted by assessing based on audit methods and techniques according to the audit program that has been prepared.

Third, audit findings must be based on sufficient competent evidence and pursuant to statutory tax provisions.

Fourth, an audit is conducted by a team of tax auditors consisting of a supervisor, a team leader and one or more team members. Under certain circumstances, the team leader may also serve as a team member.

Fifth, the tax auditor team can be assisted by one or more people with certain expertise, both from the Directorate General of Taxes (DGT) or agencies outside the DGT who have been appointed by the Director General of Taxes, as professionals, such as translators, experts in the field of information technology and lawyers. 

Sixth, if necessary, an audit to assess compliance with tax obligations may be conducted jointly with a team of auditors from other agencies.

Seventh, an audit can be conducted at the DGT office, the taxpayer’s residence or domicile, the taxpayer’s place of business or independent personal services and/or other places deemed necessary by the tax auditors.

Eighth, the audit is conducted during working hours and if necessary, can be continued outside working hours. Finally, the implementation of the audit is documented in the form of an audit working paper (Kertas Kerja Audit, hereinafter referred to as KKP).

The KKP must be prepared by the tax auditor. KKP functions as evidence that an audit has been conducted according to audit implementation standards, materials to hold the closing conference with the taxpayer concerning audit findings, and the basis for preparing the audit findings report (Laporan Hasil Audit, hereinafter referred to as LHP).

In addition, KKP is also a source of data or information for the settlement of objections or appeals filed by taxpayers and references for subsequent audits. Pursuant to Article 9 of MoF Reg. 17/2013 in conjunction with MoF Reg. 18/2021, KKP must provide an overview of the conducted audit procedures; obtained data, information and/or evidence; assessments that have been conducted; and conclusions and other matters deemed necessary relating to the audit.

Further, pursuant to Article 10 of MoF Reg. 17/2013 in conjunction with MoF Reg. 18/2021, an audit to assess compliance with tax obligations must be reported in the form of LHP prepared according to audit findings reporting standards as follows.

First, the LHP is compiled concisely and clearly, contains the audited scope or items according to the audit objectives, contains the conclusions of tax auditors supported by robust findings of whether there are deviations from statutory tax provisions or not and also contains disclosure of other audit-related information.

Second, the LHP to assess compliance with tax obligations shall contain at least the following: audit assignment; taxpayer identity; the taxpayer’s bookkeeping or recording; fulfilment of tax obligations; available data/information; borrowed books of account and documents; audited material; description of audit findings; summary of audit findings; calculation of tax payable; and the conclusions and suggestions of the tax auditors. (kaw)