Sample interview questions: Can you explain the process of auditing the recognition and measurement of income taxes (IAS 12)?
Sample answer:
Auditing Income Taxes (IAS 12)
1. Planning
- Understand the entity’s business, income tax laws, and accounting policies related to income taxes.
- Assess the risk of material misstatements in the recognition and measurement of income taxes.
- Develop an audit plan that includes procedures to address identified risks.
2. Risk Assessment
- Evaluate the adequacy and effectiveness of the entity’s income tax accounting processes.
- Identify potential areas of misstatement, such as:
- Temporary and permanent differences
- Net operating losses and tax credits
- Tax rate changes
3. Substantive Procedures
Recognition:
- Review tax returns and supporting documentation to verify the calculation and recording of income taxes.
- Examine the entity’s income tax provision to ensure it is consistent with the tax returns and applicable regulations.
- Assess the entity’s tax contingencies and evaluate the appropriateness of recognizing or disclosing them.
Measurement:
- Trace deferred tax amounts to the underlying taxable or deductible temporary differences.
- Verify the tax rates used in calculating deferred taxes and the expected reversal of temporary differences.
- Evaluate the adequacy of the valuation allowance for deferred tax assets and the appropriateness of creating a liability for deferred tax liabilities…. Read full answer