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New MVAT Audit Form 704

  • Additional responsibilities as an Auditor
  • Additional features to be reported in New Form 704
  • Issues and Difficulties
  • Welcome Changes and Redundant Sections in Old Form 704

Additional responsibilities as an Auditor

  • Carefully prepare Reconciliation Sheet with balance Sheet figures
  • Add back all amounts debited to Sales and then allow the deductions considering the  facts and circumstances of the case
  • While allowing set off, correct treatment w.r.t Purchase Returns, rate difference, etc. needs to be verified
  • Whether Stock Register is to be maintained
  • Verification of PT returns filed & payments made under PTRC
  • Verification of PT returns filed & payments made under PTEC
  • Determination of Cash sales made during the year. Cash sales means sales against which cash has been received
  • etermination of Cash purchases made during the year. Cash purchases means sales against which cash has been paid
  • Verification of Bank statements for the year along with the BRS statements and supporting for items pending in BRS
  • Verification of refund received after the year of audit
  • List  of Vendors from whom Purchases are effected for the first time under the period of audit

Additional Features to be reported in new Form 704

  • E-mail address
  • Details Of Bank accounts along with Account No, Branch & Branch BSR Codes
  • Audited Previous & Current Year’s Financial Statements With Statutory Audit Reports And Tax Audit Report
  • Stock Register along with the appropriate records
  • Refund Application made in Form 501
  • Refund received/granted by the Department for the period under audit
  • Additional places of business
  • Whether separate books of accounts are maintained at those places
  • Name & version of the Accounting Software in use
  • Change in product line in comparison to previous year
  • Place of business where books of accounts are normally kept
  • New business activity commenced during the year if any
  • Opening Stock (including WIP in Maharashtra)
  • Closing Stock (including WIP in Maharashtra)

Issues and Difficulties

1. Part-1 Point B (m):

  • Examination of Bank Statements
    • Intention of examining Bank Statements needs to be understood
    • Can STANDARD on Auditing SA 600 (Using the work of another Auditor) be relied on?

2. Part-1 Point B (n):

  • Maintenance of Stock Register
    • There is ambiguity with regard to the meaning of Stock.
    • In case of a Works Contractor how can Stock be verified as

Work-in-progress= Material+ Labour

3. Part-1, Table 2, Sr. No. 6:

  • Refund already granted to dealer
    • For the Financial year 2008-09, refund is received in the year 2009-10. Should it be considered while auditing for the year 2008-09?
    • In case of small traders, if refund is deposited in the Financial year 2009-10 and the Bank reconciliation Statement is prepared annually, how would the same be verified?

4. Part-2 Point C (iv):

  • Change in Product Line
    • Ambiguity in what encompasses a Product Line

5. Part-2, Point G

  • Part-2, Point G (2): Is it necessary to verify whether the deductions under PTRC is correct or not?

6. Part-2 Point M and N:

  • Financial Ratios for the year under audit
    • How will one provide Gross Profit ratio, Net Profit ratio and other ratios if books are not maintained as per Income tax Act?

7. Part-2 Point N (2):

  • Cash Sales
    • Accounting Definition of Cash Sale
    • What is the intention of the Department in inserting this requirement?

8. Part-2 Point N (3):

  • Cash Purchases
    • What is the treatment for imprest or expenses debited to Profit & Loss Account?

9. Part-2 Point N (8):

  • Tax to Turnover of Net Sales
    • If Net Sales is excluding taxes would the required ratio be Tax/Net Sales?
    • Another issue being whether tax also includes CST Collection?

10. Point b in Schedules I, III, IV and V and Point 2 in Schedule II:

  • Turnover of sales including inter-State consignment transfers / branch transfers
    • Clarity is required on the above Point.

11. Annexure-1 Point C (2):

  • Rule 54

Welcome Changes

1.  The new Form 704 is mainly split into three parts:

  • Part I: Audit & Certification
  • Part II: General Information, Ratios, Remarks & Observation etc
  • Part III: Schedules & Annexure.

2.  The form is aligned with the returns filed

Redundant Sections in old Form 704

1. SECTION P: Details of Purchases on Form C in Contravention of the CST Act, 1956.

2. SECTION Q: Details of Purchases of Rs. 10000/- Or More, From Dealers/ Persons Not Registered under MVAT Act 2002.

3. SECTION U: Stock Account of Declaration Collected and Utilized During the Period of Review.

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