Tax Audit

A tax audit is an independent review of the accuracy of a company’s tax calculations and payments. The process involves analyzing accounting and tax reports to identify potential errors, violations, or deficiencies that could lead to claims from the Revenue Service of Georgia. Conducting a tax audit allows business owners to prepare in advance for inspections, minimize the risk of tax penalties, and avoid fines.

A tax audit is beneficial for both large corporations and small to medium-sized businesses. Given the constant changes in legislation and the increased focus on tax compliance, timely expert evaluation helps companies avoid significant financial losses and negative consequences.

Key Features and Stages of a Tax Audit

Audit stages:

• Preparation. An independent audit firm signs a contract with the client, defining the objectives and scope of the audit, as well as the timeline and deliverables;
• Document collection and analysis. The auditor requests the necessary documents for review, including tax returns, accounting reports, and primary documentation such as invoices, acts, and receipts;
• Analysis of tax reporting. The auditor conducts a detailed examination of the accuracy of the company’s tax calculations and payments. Special attention is given to corporate income tax, VAT, social contributions, excise taxes, and other mandatory payments. Tax returns are reviewed for accuracy, proper completion, and timely submission;
• Identification of errors and violations. Based on the analysis, the auditor records any errors or deficiencies in tax calculations. Common issues include incorrect application of tax rates, late payments, improper documentation, and missing primary records;
• Reporting and recommendations. At the end of the audit, a report is prepared outlining all identified violations and providing recommendations for correction. The auditor explains the necessary steps the client should take to resolve issues and reduce future risks.

Why is a tax audit important?

Here are the key reasons why we recommend businesses conduct a tax audit:

• Prevention of tax risks. A tax audit allows a company to identify potential issues related to tax payments in advance and take corrective action. This is especially important before a visit from the Revenue Service, as voluntarily addressing violations can help avoid fines;
• Reduced likelihood of tax inspections. Companies that regularly undergo audits are generally less likely to attract the attention of tax authorities and tend to gain greater trust from investors and business partners;
• Optimization of tax payments. During an audit, opportunities often arise for legally reducing the tax burden. Auditors can recommend optimal tax strategies that help the business save on tax payments;
• Preparation for internal and external reviews. A tax audit helps prepare for both internal audits and external inspections by counterparties, investors, or the Revenue Service.

Results of a tax audit

The outcomes of a tax audit can significantly influence a company’s tax strategy and financial management. Here’s how it works:

• The report on identified violations enables company management to assess current risks and take action to eliminate them;
• Specific recommendations for correcting violations help adjust tax reporting in order to avoid claims from the Revenue Service;
• Based on the collected data, the auditor can suggest optimal tax strategies that reduce the company’s tax burden without breaking the law;
• After an audit, companies are generally better prepared for visits from tax authorities. Identifying and correcting errors in advance helps avoid substantial fines and penalties.

In Tbilisi, you can order a tax audit service from Financial Outsource. Our specialists will help improve your company’s internal processes related to accounting and tax calculation. In the long term, this will significantly strengthen your business’s financial position. Call us for a consultation.