Indian Customs & Central Excise - Computer Assisted Audit Programme (CAAP)
The Computer Assisted Audit Program (CAAP) provides a method of gathering and receiving data in electronic format rather than paper. The use of CAAP benefits both the taxpayer and the Department by building an environment that uses technology to ensure efficient use of government and taxpayer resources. This program is extremely helpful to taxpayers because using the CAAP tax audit allows the Department to review, analyze and verify taxpayer data more efficiently and effectively.
Large number of companies have started maintaining their records in electronic format [some companies are even paperless]. These companies have global perspective and are competing internationally and have huge volume of records. The system of manual audit is not adequate to handle the auditing of such assessees. Auditing of their records require understanding of not only the accounting systems but also computer skills to read and process data files. The auditors need to be equipped to interrogate the data in electronic format.
The Computer Assisted Audit Programme [CAAP] is a method of audit of such assessees. By using CAAP, the auditor analysis the business system of the assessee, understands the systems flow chart, computer programming flow chart, the layout of the files and finally determine the data transfer mechanism. The linkages and discrepancies in the assessee's data are detected for the purposes of identifying and narrowing down the possible areas of tax non-compliance, which helps in conduct of EA 2000 audit.
The Departmental Audit under CAAP will involve examination and analysis of business (private) records that are maintained electronically. Under CAAP, all or a part of audit could be completed using electronic records. Trained in auditing of electronic records, the Central Excise Officers who shall conduct Computer Assisted Audit shall use commercial and custom software on secure departmental computers for this purpose.
CAAP Audit Procedure
- The Computer Assisted Audit starts with a meeting between the CAAP Auditor and assessee’s accounting/systems staff. During the meeting, the CAAP Auditor would request some information to determine the feasibility of the CAAP Audit. The questions are part of a Computer Assisted Audit feasibility survey and include information about –
(a) Hardware and Peripherals
(b) Operating System used by the assessee’s computer system
(c) Accounting Software used by the assessee
(d) Accounting Information – like chart of accounts
(e) Details of information in the assessee’s electronic records
(f) Back-up and Data retention methods used by assessee
(g) Data export options supported by the assessee’s system
(h) Conversion of the assessee’s data to a format readable by departmental computers
- The CAAP Auditor would identify specific computer files and records he/she requires for the audit and ask the assessee to provide a copy of those records on a disk or a Compact Disk (CD). He/she might also have to ask the assessee to convert the data to a format that is not proprietary and readable by departmental computers. The assessee can make a second copy of the same records provided to the CAAP Auditors.
- The auditor would next copy these records to a secure departmental computer and analyze/verify them using a combination of commercial and custom software. The assessee’s data is not altered during the examination. Rather, the auditor reviews these, validates that all of the records are included in the data, summarizes them, and extracts a copy of selected records of interest to a number of reports.
- After downloading the assessees data files the auditor prepares these files so as to make them readable for the audit software. The WINIDEA software is used to perform various functions on this data like, file stratification, joining of databases, extraction of selected portion of databases, detection of missing invoices or duplicate series etc. Essentially this software allows the auditor to interrogate and analyse data for audit purpose.
Thereafter, the steps are the same as those in EA 2000 audits. The CAAP has been started on experimental basis in few selected Commissionerates.
A data integrity check is performed to verify that the electronic data provided by the taxpayer to the Department is both complete and accurate. This is accomplished by reconciling the electronic data with the taxpayer's books and records.
A sampling approach is typically used only when the entire data cannot be efficiently reviewed. The Department employs various sampling approaches when using electronic data as a source. As with any audit, following the completion of the sampling process, but prior to projecting the results, the auditor will share the preliminary results with the taxpayer. The taxpayer may be requested to obtain additional documentation or indicate agreement/disagreement with potentially taxable transactions identified by the auditor.
CAAP Audit Benefits
- Computer Assisted Audit saves time both for the assessee and department as it takes much shorter time than manual audits as most of the records are made available to the auditor in an electronic format which is examined using a secure departmental computer. It also saves paper as an electronic audit reduces the amount of paper normally needed, produced or photocopied during an audit.
- Auditors spend less time at the taxpayer's place of business, making the audit process less disruptive to the taxpayer's business activities.
- Duplication of effort is eliminated related to data input. Transactions are reviewed as they were initially recorded in the taxpayer's business records.
- CAAP sampling methods result in more precise sampling results.
- CAAP results in increased efficiencies related to summarizing electronic data, sampling, and data conversions.
- In many instances, sampling is not necessary due to the efficiencies gained through electronic data access. This results in the taxpayer having full assurance related to the accuracy of audit results.
Security & Confidentiality
The assessee’s records are handled with extreme care and are encrypted during transfer and storage. Such records obtained from the assessee are accessible by only the authorized Central Excise Officers. Upon completion of an audit or upon conclusion of any appeal or judicial review, the records provided are securely erased and CDs destroyed. The assessee may advise the CAAP auditors in case he (the assessee) wishes to have his CD returned back. The Computer Assisted Audit in no way causes any risk to the assessee’s computer or electronic records. The CAAP auditor would only ask the assessee to make a copy of the assessee records.
In short, Computer Assisted Audit works by analyzing a copy of assessee’s electronically stored records that are provided to the CAAP auditor on a disk of Compact Disk (CD). The original records of the assessee are not “touched” or altered in any way. The assessee’s original records are not altered in any manner during the Computer Assisted Audit process. In fact, the commercial software used by the CAAP auditor is designed specifically to never alter any audit records.
Based on www.cbec.gov.in