Taxation and Tax Audit of SMEs

Small and medium enterprises (SMEs) are undoubtedly very important actors in the Albanian trade and economy, both in quantitative and qualitative terms. As regards the former aspects, SMEs represent 97.8% of all enterprises located in the Albania, and they employ more than two thirds of the overall workforce (Instat, 2008). For what concerns the qualitative aspects, it has been pointed out that the role of SMEs in the Albanian society has become increasingly important as providers of employment opportunities and key players for the wellbeing of the communities at local and regional level. At the same time it will be no longer possible to ignore their impact on economy given the fact that actually the average firms size is decreasing, and therefore the Albanian business scene will be occupied predominantly by SMEs, not only in quantitative terms.The required capabilities of auditors were generally identified by analyzing the activities required to perform particular audit tasks, and through practice and experience. They were often based on the notion that auditors are generalists, who may subsequently develop into specialists to meet organizational needs. The required capabilities of audit managers and directors were typically identified and based on the notion that they were to be both people leaders and tax technical leaders. Coaching, communication, and leadership skills are seen by many as important capabilities. Experienced personnel (who have proven and demonstrated abilities to perform audit work) generally identify the required capabilities to perform audit work. Specialist qualifications and skills were not cited as important factors in determining who is to identify the required capabilities. The majority of responses identified senior management, team leaders and experienced audit staff as the people who identified the required capabilities. This was often done jointly or in consultation with human resource stakeholders, training departments and head office.The required capabilities for audit staff in Albania using competency models are as listed below:- conduct investigations;
- determine compliance;
- tax accounting and financial analysis;
- conduct research and analysis;
- apply the law (technical expertise);
- make effective decisions;
- communicate effectively;
- apply work processes and procedures;
- manage own work;
- achieve results; and
- manage relationships.Responsibility and accountability for improving auditors, audit managers and audit directors commonly lies with the staff member in question and their direct manager and/or local management team. Responsibility and accountability is influenced by the organizational structure that change in accordance with the change of tax leadership. Human resource departments (where applicable) often have joint responsibility and/or are significant contributors to this process, together with tax auditing / training departments.The audit is responsible for managing a coordinated audit program for all taxes for which the tax administration is responsible (Income Tax, VAT, etc.). This does not necessarily mean that an auditor will be expected to do a complete audit of all taxes but rather that the Audit Department will adopt a coordinated approach in selecting and conducting audits. Whenever possible, income tax and VAT audits should be conducted simultaneously, even though different tax periods may be audited for each type of tax. For example, an income tax audit for 2007, 2008 tax years and a VAT audit only for 2008 tax periods. This will enable common issues, records and areas of concern to be dealt with comprehensively.The Regional Audit Directories, that have the competencies to audit SMEs also develop close cooperation with all other Directories of the Regional Tax Directorate and neighbor Regional Tax Directorates in particular; the Anti-Evasion Directorate in General Taxation Directorate, not only to ensure cases of suspected evasion are referred on a timely basis but also to volunteer the expert audit services of the Directorate in investigations being conducted; the Enforced Collections Directorate to receive referrals of audit stop-filers or no filers; and, the Appeals Directorate – to re-audit taxpayers who have produced new evidence during the appeal process.The substructure of the directory includes units to conduct both office audits and field audits. Additionally, auditors can be grouped by specialty, both by type of tax (VAT, Excise, Income, etc.) and type of industry (banking, manufacturing, retailers, etc.)Repeated focus on an industry will permit an auditor to become expert in the tax legislation issues and the necessary audit techniques related to specific industries. A separate unit handle risk analysis methodology based in automatic selection with data mining drill system. Until an automated case selection system based on risk analysis is developed in all country, this unit will Coordinate the regional directorates that work manually with them that really are automated. Once the automated system really is effective in place, staffing will be reduced but will still be necessary to ensure that the risk assessment system is functioning properly and to supplement it as appropriate. This is necessary to provide a small number of audits for compliance coverage even where the risk is relatively low, and to deal with newly discovered pockets of non-compliance.Finally, a separate audit review unit is necessary for post audit quality assurance and trend analysis. A strong accounting education is required for the staff assigned to perform income tax and specialty audits in the field (outside the tax administration’s office). Staff handling simple office audits (where the taxpayer visits a tax administration office) and VAT audits or controls require minimal accounting skills. Auditors assigned to complex case audits, audit classification, and audit quality review, should possess excellent skills and have significant experience in the department. All staff must be knowledgeable in tax law, audit techniques, and internal operating procedures. Along with all other public contact employees of the tax administration, they must possess good interpersonal skills and exercise good judgment in accomplishing their work assignments.

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