ISLAMABAD (December 14 2002) : The Central Board of Revenue (CBR) has directed the chartered accountant firms to strictly follow the procedure laid down by Securities and Exchange Commission of Pakistan (SECP) for resolving disputes relating to payment of audit fee to special auditors.
The methodology was mutually thrashed out by the Institute of Chartered Accountants (ICAP) and tax authorities for payment of fees to special auditors appointed under Sales Tax Act, 1990, as some of the special auditors, time and again, had approached CBR to resolve the payment disputes.
The tax authorities expressed inability to resolve the issue in the presence of SECP regulation and directed the special auditors, appointed under section 32A of the Sales Tax Act, to proceed as per the Commission's directive.
Sources told Business Recorder on Friday that there was confusion about payment of fees to chartered accountant firms. The CBR requested SECP to intervene and resolve the issue. SECP, after hearing both sides, issued an order on July 3, 2001, which is still in vogue. Chartered accountant firms were persistently filing complaints about the delay in payment.
The CBR appointed several auditors in 1998 for carrying out special sales tax audit of registered persons.
The scale of audit fee payable for each period was mentioned in the appointment letters.
The confusion was created on the interpretation of the word 'period' (in cases where the audit was to be carried out for more than a year) for which the fee in each case was decided.
The auditors contested that the 'period' is a financial year, whereas the CBR was of the view that it is the entire period mentioned in the appointment letter.
ICAP asserted that an ex-CBR chairman had verbally agreed to pay the fee on yearly basis. Certain collectorates of sales tax have paid the fee on amount worked out on yearly basis.
The regional authorities also issued clarifications that fee would be paid on yearly basis. Contrary to this, CBR issued an entirely new interpretation in 2000, auditors said.
Only CBR has the authority to decide matters of interpretation, as the collectorates have no power to finalise such issues.
Accordingly, no reliance can be placed on the letters issued by the collectorates, the CBR said.
SECP analysed the appointment letters, which indicated that though the appointments were made by CBR, the actual engagement letters were issued by the collectorate of sales tax.
These tax offices did not follow a uniform language pattern. In cases where the standard letter of CBR had been used, the blanks had not been filled by collectorates.
Clarifications issued by collectorates of sales tax were not through CBR, while ICAP stated that for them the collectorates were part of CBR and it was immaterial for ICAP that the members of collectorates did not consult head office before issuance of clarification.
Finally, it was decided that audit fee will not be determined on yearly basis, unless in any case the allocation/appointment letter stated otherwise.
If a special auditor had accepted an assignment despite the fee calculation, he was doing so at his own peril and is not entitled to fee in excess of the amount as is determined in accordance with CBR clarification.
Furthermore, the first instalment of fee would be paid to the firms in term of units allocated for special audit before May 6, 2000, under following procedure.
For special audit of units (covering over one year) located at stations where the auditor had an office when the work was done, the fee would not be determined on yearly basis but would be calculated on the basis of period given in appointment letter being treated as one year.
In case auditors have no office at stations where units are located for audit (involving more than one year), the fee would be determined on yearly basis.
This will to some extent compensate the special auditors for additional outstation expenses being incurred by them on their audit teams.
Outstation units mean the units located outside the city in which the CA firms have an office during the time when the work is carried out, and Rawalpindi-Islamabad would be treated as one city.