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The effective tax rate has fallen from 25% to 19.9%. An audit risk arises in that the tax expense and associated liability could be understated. This could indicate management bias as the financial statements suggest that accounting profit has increased, but the profit chargeable to tax used to determine the tax expense for the year appears to have decreased.
maam I don’t understand the latter part of the paragraph, how are they able to reach this one of the possible conlcuison that taxable profits have reduced? have they used 25% as assuming rate and then 64/25%=256 as the taxable profits? v/s accounting profit of 322?
Maam no offence, but I do know how to calculate effective tax rate figures, and so that isn’t my question.
my questions actually related to this “….suggest that accounting profit has increased, but the profit chargeable to tax used to determine the tax expense for the year appears to have decreased”
how are they able to say that profit chargeable to tax(figure arrived at by tax authorities) has DECREASED?
How can it be otherwise? Assuming a tax rate of 25% (not unreasonable as that was the effective tax rate last year) if this year’s tax charge is less than 25% x 322 it must be because 25% is calculated on a taxable profit (profit chargeable to tax) that is less than 322.
ya perfect this clears it all! thank you so much for your prompt response!
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