Audit of Costs and Cost of Sales
Validity, documents, tax consequences
Go to the Initiative Audit serviceChecked against the official source:
Costs are tested in two dimensions at once: whether they are correctly recorded in the accounts, and whether they are deductible for tax purposes. A mismatch between these two answers is the source of most additional tax assessments related to expenses.
The tax side of costs
- expenses must be supported by documents; for example, business travel expenses by an order and travel documents (Article 305 of the Tax Code);
- shortages and thefts where the culprits have not been identified are not deductible (Article 317);
- for inventories under IFRS, cost is determined under IAS 2.
What is tested
- Documentary support for expenses and correctness of source documents
- Link between expenses and activities aimed at generating income
- Recording of costs in the correct period
- The method for allocating overheads and its consistent application
- Build-up of cost of sales and correctness of write-offs
Typical findings
The most common findings are expenses without proper source documents, costs recorded in the wrong period, and services for which it is impossible to prove they were actually rendered. The last category is the most vulnerable in a tax audit.
Review your cost structure
We will check the documentary support for expenses and assess the tax consequences.
Go to the Initiative Audit serviceFrequently asked questions
Is the business rationale of expenses tested?
The auditor assesses the link between expenses and the business and whether supporting documents exist, not the commercial wisdom of management's decisions as such.
Which expenses do not reduce corporate income tax?
In particular, shortages and thefts where the culprits have not been identified (Article 317 of the Tax Code) and expenses not supported by documents (Article 305).
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