Income tax accrual (substantive)

To agree any balance in SoFP and G/L balance is confirming completeness and accuracy in so far as the same $amount is included in both the ledger a/cs and the financial statements. However, that would not be sufficient evidence (or there wouldn’t be much to auditing!)

Agreeing after date payment is always a good substantive procedure for a current liability – if the amounts recorded and the amounts paid are in agreement that it is a test of completeness. If the amount paid was more that would suggest an underaccrual/unrecorded liability/understatement of the tax liability.

Even if you haven’t done TX you should have a general awareness that companies pay tax on profits and commonsense should say that that profit amount isn’t plucked out of thin air but based on reported profit (with appropriate adjustments). So while you do not need to know any details for AA you should be aware that there will be a tax computation (prepared by the company). This will be submitted to the relevant tax authority which will agree it, and the amount payable, before the company pays it. So the auditor will be able to agree the arithmetic accuracy of the computation (and any supporting schedules) and the amount payable to some tax “notice”.

You’re welcome!