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Auditor's Risk

joji jose (audit manager) (242 Points)

02 July 2009

One of our client a private limited company running a Commercial Computer eduation training centre. They have turnover of Rs. 70/- lakhs they have collecting service tax for main cources. For shortterm cources they are not collecting and paying Service tax, During the year they have Rs. 5 lakhs as short term course fees. What is the auditor's risk in this regard. whether we have to mention the same in the audit report. Whether the company has to create provision for the service tax liability. Kindly guide me in this matter

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3 Replies

RAMANJU (here to updating the knowledge) (485 Points)
Replied 02 July 2009

Satisfying the Service tax applicablity for the above said case, you can discuss with the client for creating provision for Service Tax liability in the books that can be paid in the subsequent year with interest and penalty, if any. In case the client does not agree , auditor should qualify his report showing the impact of non providing of liability towards service tax.

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Amey (Service) (137 Points)
Replied 02 July 2009

Based on previous year course fee, it appears that client is in SME category. I suppose financial statements will also not be final at this point.

Service tax will be applicable on all courses. So it is better to create a provision for service tax liability on short term fee of Rs. 5 lakhs. Client will have to pay the service tax from its own funds for this case. There will be no risk if the provision is appropriately created.

In future client should be adviced to charge service tax on short term courses also.

RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 02 July 2009

THE AUDITOR SHOULD QUALIFY HIS/HER REPORT IN THIS REGARD.AT THE SAME TIME A PROVISION IS TO BE MADE BY THE CLLIENT OF THE SERVICE TAX EVADED=INTEREST=PROSPECTIVE PENALTY.AND FROM NOW ONWARDS CLIENT SHOULD BE ADVISED TO COLLECT SERVICE TAX ON SHORT TERM COURSES AS WELL.