EXPERIENCE IN TAX INSPECTION AND AUDIT FOR CONSTRUCTION COMPANIES

What should accounting staff do during a tax audit or inspection for construction businesses? Here are some important things to remember to avoid penalties. Please read the following article carefully and prepare documents before the tax authorities send an inspection decision.

1. Review all invoices for materials, costs, receipts, payment slips, incoming and outgoing vouchers:

   • The original invoices must be attached to the declaration (if it is an electronic invoice, print the invoice and attach it).

   • If the goods arrive before the invoice, when making photocopies or printing invoices for the months, remember to note the declaration date and which VAT return (monthly/quarterly) the original invoice belongs to. Since it is a photocopy, make a note at the bottom for easy reference later. If the goods arrive before the invoice, there must be a delivery note or proof of delivery from the seller to verify. If not, the costs may be rejected.

   • Print all receipts, payment slips, incoming and outgoing vouchers and attach them to the original documents like invoices, quotations, purchase lists, contracts, etc.

2. Review the financial statements for the inspection period:

   • Print the complete financial statements for all years and keep them stored. Remember to keep the initial version and the submitted versions. During the audit, the latest version will be the reference document.

   • Any corrections or amendments should be noted separately to explain any changes in the financial statements.

3. Review the general ledger accounts for any anomalies:

   • Extract the general ledger for each year to check the year-end totals. High-risk accounts should be explained in advance, and relevant documents should be prepared before the audit.

4. Prepare all construction contracts:

   • Each project should have a file: contract, stage acceptance, final acceptance, and quantity verification.

   • Each file should clearly state the project name, start and end dates for easy searching.

   • Store the contract files in separate boxes for each project or in an organized manner with clear labels to avoid confusion.

5. Audit the detailed general ledger for expense accounts for all years, particularly property rental agreements from individuals:

   • For rental agreements, include the cost statement (01/TNDN), payment vouchers, along with the landlord’s identification (ID card or citizen identification), proof of ownership (land use certificate, car registration, etc.) for rental income under 100 million VND/year. For income over 100 million VND/year, ensure tax payment receipts from the individual or tax payment proof on behalf of the landlord.

   • Review and reject any costs that cannot be verified as relevant to the business operation.

   • Pay attention to any purchases for gifts or donations, as these must be invoiced to be considered legitimate business expenses.

6. Review the Cost of Goods Sold (COGS) account (Account 154) for all years:

   • Detail the cost for each construction project, including profits and losses for each project.

   • Summarize contracts in an Excel sheet with details of project times, completion, and invoicing.

   • Review account types related to COGS (621, 622, 623, 627).

   • Cross-check material usage against project estimates to ensure alignment and verify discrepancies.

   • Any overages in material costs should be excluded from costs, and tax penalties should be applied accordingly.

7. Reconcile tax obligations with the state budget:

   • Verify all taxes: Corporate Income Tax (CIT), Value Added Tax (VAT), Personal Income Tax (PIT), Contractor Tax, Special Consumption Tax (SCT), etc.

   • Review previous declarations for out-of-province taxes: If taxes are due in a different province but are recorded as part of the local tax collection, only net liabilities can be offset, and incorrect declarations may be subject to retroactive adjustments.

8. Check labor costs:

   • Allocate labor costs according to the project estimates and ensure proper documentation.

   • Cross-check contracts with the estimated costs and ensure that contract dates match the payroll records (e.g., a contract signed in August but payroll is recorded in July should be corrected).

   • Ensure all payrolls are signed by relevant parties, and avoid any discrepancies in signatures.

9. Invoices and contracts for vehicle purchases:

   • If purchasing vehicles in installments, ensure that all payment documents, bank transaction slips, and vehicle purchase agreements are prepared and stored for audit purposes.

   • Prepare documents showing both principal and interest payments for vehicle loans.

10. Tax return adjustments and supplements:

• Correct any errors in the tax returns by adjusting the relevant sections and prepare supporting documents for the adjustments.

• Make sure to note down any explanations in advance for easy reference during the audit process.