How one client survived an IRD Desk Audit!!

One colleague recently told us about a client who got a phone call from the IRD advising they would be doing a GST audit. The client's reaction was a typical one … that sinking feeling in the pit of the stomach at the thought of a visit from the IRD.

The IRD advised they would be sending out two auditors for a full day and the client was naturally very apprehensive. "Why me? What have I done that justifies this?" he said. The trigger for the audit was that the business regularly applied for GST refunds.

The client immediately called their Tax Accountant who advised them to contact the person who prepared the final accounts. This person, a long time CAD partner (www.cadpartners.co.nz), arranged to attend on the day of the audit. He advised the client to introduce him briefly to the auditors … then hand them over to his 'Financial Controller'. The client went off to the factory to earn some more money.

The CAD partner had a brief chat with the auditors and showed them where all the records were kept. They quizzed him on his knowledge of GST and he was able to satisfy them that he had a thorough understanding of GST. The auditors began their job and quickly found the records were in correct order. This obviously gave them confidence that the person in charge of doing the GST Return knew what they were doing and the records used to produce the GST Return were in excellent order.

There were:
• Audit trails from the Accounting System
• Documents were archived for easy access by the auditors
• Good record keeping with working papers available

After checking a few documents and after only two and a half hours, the auditors left giving the business the 'green tick'. Everything was in order and they could understand the reason for the regular GST refunds.

The moral of this story is that if you have good records and the IRD can see that you know what you are doing they will feel much more confident about the accuracy of your GST re-turns. Once they see a mess and deal with a person who doesn't appear knowledgeable about GST they start to worry and worry causes them to want to look further.
Whilst we help many business owners with financial analysis and loftier aspects of business planning, it's desk audits like this that remind us how important it is to have good records and someone to phone when the tax man comes calling.