Audit Procedures: VAT summary

Obtain a summary of VAT on inputs and VAT on outputs over a month/quarter/period and compare to a
Objectives: summary of sales and purchases over the same period. Investigate any unusual variations, taking into
account applicable VAT reliefs, such as exemptions or zero-rates.
Detailed Work Steps WP Ref. Done N/A Comments
1) If the Company is in VAT payable position,
obtain a copy of the Company’s filed VAT returns
and related proofs of payment (payment details),
if any, for the covered
period of the audit and check the Company’s
administrative compliance (i.e., venue for filing
and payment, deadline for filing and payment)
for possible late filing and
payment of VAT payable that will result to
penalties (surcharge and interest).

2) For the amounts of total gross sales/receipts

(VATable at 12%, Sales to Government, Zero-
rated Sales and Exempt Sales), input and output
VAT declared per VAT
returns, perform the following procedures:
(a) Foot and cross-foot the amounts reported
by the Company in its filed/E-filed VAT returns
(b) Perform a comparison of the total gross
sales/receipts (VATable at 12%, Sales to
Government, Zero-rated Sales and Exempt
Sales) declared by the Company in its
filed/E-filed VAT returns against the
amounts recorded in its books.

Ensure also that all amounts reported by

the Company in its filed/E-field VAT returns agree
with the supporting computations.

For the amount of gross sales/receipts, test

of reasonableness (TOR) must be done per gross
sales/receipts type (VATable at 12%, Zero-rated
sales and exempt
sales).

Perform a TOR of gross sales/receipts for

VAT purposes as follows:
i. Perform TOR following Company’s
practice of reporting sales/receipts for VAT
purposes (e.g., if based on revenues or on
receipts). Discuss with the Company the
differences noted and obtain
reconciliation from the process-owners to check
the correctness of each reconciling item.
ii. Determine also if Company’s actual
practice of reporting VAT base may result in
potential VAT exposures (e.g., VAT on sale of
services based on revenues instead
of receipts resulted in lower VAT base).
If there is, perform a TOR of VAT base following
correct basis to determine amount of potential
VAT exposure.

(c) Perform comparison of the amount of

excess input VAT or VAT payable as of the end of
the period covered by the audit against the
amount reflected per books.
Discuss with the Company the difference
noted and obtain reconciliation from the process-
owner to check the correctness of each
reconciling item.
3) Perform the following procedures to check if
the recognition and measurement of the output
VAT (and possible Deficiency VAT) are properly
determined in accordance
with relevant tax legislation (e.g., tax laws,
regulations, rulings, etc.):
 A. Output VAT on the sale of goods and
properties.

(1) In relation to the test of reasonableness

(TOR) on gross sales performed in 2.2 (b), obtain
sample journal entries for the following
transactions to check
whether the Company applied the
proper treatment for VAT purposes and trace the
said samples from the corresponding supporting
documents:
a) zero-rated sale of goods as
supported by VAT zero-rated invoices
b) VAT-exempt sale of goods as
supported by VAT-exempt invoices
c) For the following allowable
deductions from gross selling price:
i. Discounts granted at the time of
sale as supported by VAT invoices. This is to
check if the amounts are included in the gross
selling price and if the sales
discount indicated in the invoice
at the time of sale, the grant of which is not
dependent upon the happening of a future
event, are excluded from the gross
sales within the same
month/quarter it was given.
ii. Sales returns and allowances as
supported
4) Perform by thecreditfollowing memos for whichtoacheck
procedures properif
credit
the or refund and
recognition weremeasurement
made during of the the month
inputor
quarter
VAT (andtopossible
the buyer for salesVAT) and deferred
Deficiency
input VAT are properly previously recorded as VATable
sales.
determined in accordance with relevant tax
legislation (e.g., iii. Price adjustments
tax laws, regulations, (downwardrulings,and
upward), if any, as supported by memos,
etc.):
addendum and other and/or
(1) For purchases supporting documents.
importation of
This is to
capital check if downward price assets for
(2) Ifgoods
the Company which are has depreciable
mixed transactions
income tax purposes, adjustments perform afterthe the sale should
following
(i.e., Company has transactions subject to 12%
were includedinput
information:
5) If claim in the computation of the TaxVAT
VAT, and tofor 0% VAT,VAT refund and/or
VAT-exempt, or sales Credit
to
base. These
Certificate are
(TCC)
a) Obtain not
aasset valid
schedule deduction
account [therelated from
schedule to gross
input
shall
government), determine if the
selling
VAT
contain, price.
refund among granted others,is significant,
information perform
on the the
Company allocates its input VAT. Obtain
following
purchase (2) If significant,
procedures
amount, date to check
of purchase,the Company’s
description
schedule of allocation of input VAT on mixed
breakdown
of check
the goods, of total
if the miscellaneous
said accounts
input VAT and
are other
carried income
at of
their
transactions and perform a re-computation
and
net evaluate ifvalue:
suchand income itemsas are subject
as theto
the realizable
allocation (deferred of input claimed),
VAT. For well
VAT
monthlybased inputon gross
VATrefer selling
claimed in theperform
VAT
A. For the TCC
guidance, asset toaccount,
relevant tax returns] the of
issuances
monthly price by obtaining the related
following
(e.g., RRpurchases
procedures:
No. 16-2005, of capital RMC goods and compare
No. 62-2005,
supporting
it with the documents
amount of of the key items.
etc.).1. Obtain summary of the TCC granted
B. Output VAT
ofon
purchases the
of sale of
capital services
goods declaredand use
(including copy the related TCC) and compare
orwith
per lease
VATthe of amount
properties
it Inreturns.
case noInallocationaddition,
per compare
books/trial
of input thewas
balance.
VAT
deferred (1)
2. In
input relation
VAT
the per to the test
schedule of reasonableness
andallocation
per VAT of
made byObtain
the Company, Company’sperformmonitoringan
(TOR)
returns on gross
with the sales
amount performed
per TCC in 2 (b), obtain
schedule
input VAT of
onthe outstanding
a quarterly basis to (with
determine expiration
sample
dates). journal
Makebooks/trial entries
sure that the for
balance the following
(consider
balance of the current
TCC
potential over-claiming of input
transactions
and topercheck whether the
assetnon-current
account
VAT. Make classification).
books/trial
sure that the amounts Obtain that will
reconciliation Company
balance of the
is applied
differences
supported theby proper
noted.
unexpired treatment
be used in the allocation are the amounts
for VATb) purposes
Perform and trace the said
re-computation of samples
input VAT
TCCs.
declared In case
in filedof expiration
quarterly of the
VAT TCC,
returns. make sure
from
claimed
that thefrom
the corresponding
amount purchases supporting
of capital goods
will be derecognized. documents: in the
following a) zero-rated
manner, where sale of
its the goods
aggregate as
In addition, consider possible impact
supported
acquisition bycost
Please VAT zero-rated
of to
refer these
to theRMC invoices
capital
No. 44-2012 goods\
of the non-allocation company’s profitand or
other relatedb) VAT-exempt
(exclusive
issuances of sale
forVAT)
the of ingoods
rules as
a calendar
and
loss or other balance sheet account.
supported
month has exceeded
requirements by non-VAT invoices
on the monetizationP1,000,000, and/or
regardless(2) Ifofsignificant,
utilization of
TCC. the acquisition check the costCompany’s
of each
breakdown
capital good: of miscellaneous and other income
and B. evaluate i. If if
thesuch income
estimated items
useful are
life subject
ofclaim
a to
For the on-going input VAT refund
VAT based on
asisgross
capital good selling
recognized afive (5)
separate years assetor account
more, the input
from the
tax shall price
be spreadby perform
obtaining
evenly the thefollowing
over related
a period of sixty
excess input VAT,
supporting
(60) monthsdocuments and the claim of the forkey items.
procedures:
C. Deferred output
input tax VAT
credit on the sale
will commence of servicesin
1. Establish if the related input VAT refund
and
the useare
calendar or attributable
leasemonth of properties
when the capitalsales goodby is
claims to zero-rated
acquired. (1) Obtain a schedule
tracing the amount of excess input VAT being of deferred output
VAT related
to to
ii. If the
the outstanding
estimated receivables
life of a and
refunded the related filed useful
compare
capital goods the balance
quarterly is less VAT ofreturns
than the deferred
5 years, where theout input
the VAT
zero- and
tax
related
shall be outstanding
spread
rated sales wereevenly declared. on a monthly basis by
dividing the receivables
input tax with by the theactual
balances per
books/trial balance.
number of months
2. Obtain summary of thecomprising
on-going input the
estimated
VAT (2) Inuseful
refund casewith
filed of written-off
life of
thethe BIRcapital
and/or ofgood
other and the
receivables,
andobtain
claim for input tax sample
credit journal
will total
commence entries in theof
authorities compare the amount
receivables
calendar month
outstanding written-off
per whensummary andagainst
the check ifthe the related
deferred amount output capital VAT was
good reversed.
is acquired.
per books/trial balance. The
(3) Discuss with the Companyacquisition the
following Note: information that themust aggregate
be included in the
exceptions
cost noted and
of depreciable assetsobtain reconciliation
in any calendar month from
the process-owners
refers to the totalto checkexcluding
price, the correctness the VAT, of
each reconciling
agreed upon for one or more item.
assets acquired and not on the
payments actually made during the calendar
month. Thus, an asset acquired on installment
for an acquisition cost of more than
P1,000,000, excluding the VAT, will be
subject to the amortization of input tax despite
the fact that the monthly payments/installments
may not exceed
P1,000,000.

When the aggregate acquisition cost

(exclusive of VAT) of the existing or finished
depreciable capital goods purchased or imported
during any calendar month does
not exceed P1,000,000, the total input
taxes will be allowable as credit against output
tax in the month of acquisition.
 3. From the summary of the on-going
input VAT refund, prepare a summary of the
following information to check if each filed input
VAT refund are still valid:
a) Close of the taxable quarter for each
period/quarter covered
b) Last day of filing the administrative
claim for refund (2-year period) with BIR
c) Date of denial of the BIR
d) Lapse of the 120-day period in case
the BIR failed to act on the application
e) Last day of appealing to the CTA (end
of the 30-day period)

Indicate on each of the input VAT refund

period, remarks (e.g., premature filing prior to
the lapse of the 120-day period) about the
validity of the claim in terms of
the administrative requirements. Make
sure that the amounts of invalid input VAT refund
are derecognized per books/trial balance. For
purposes of this procedure,
refer to relevant tax issuances and
court decisions (e.g., amended RR No. 16-2005,
RMC No. 54-2014, Aichi case, etc.).

4. For administratively valid input VAT

refund which are still in the BIR level (waiting for
the BIR denial or the lapse of the 120-day
period), consider past experience
and the current status of the
company’s VAT documentation related to the
amount of input VAT refund and determine if
there is a need to set-up allowance for
possible disallowance of the input VAT