Question

1. What are the four main steps of tax administration? Describe what they are and their purpose.

2. What is meant by cash management? What does it entail and why is it important?

3. What is the Sarbanes-Oxley Act and what is it intended to do? Why was this act passed?

4. Describe the various types of audits and how they are used.

Answer 1

(1)Tax administration includes assessment, collection, enforcement, litigation, publication,under such laws, statutes, or conventions.Tax administration should be effective in the sense of ensuring high compliance by taxpayers, and efficient in the sense that administrative costs are low relative to revenue collected. Good tax administration requires strong technical capacity by the administrative agency but also a well-designed tax.

(a)Assessment-An assessment occurs when an asset's value must be determined for the purpose of taxation. Some assessments are made annually on certain types of property, such as homes, while others may be made only once. For example, homes are often valued every three or four years according to their physical condition and comparable values of surrounding residences

(b)Collection-Tax revenue is the income that is gained by governments through taxation. Taxation is the primary source of income for a state.The process of the government getting money(tax revenue) from people and businesses required to pay tax and the amount of tax the government gets from this activity.

(c)Enforcement-It compels observance and compliance with with respective tax laws and rules.

(d)Publications - It includes informational booklets by the Internal Revenue Service (IRS) that outlines the rules governing the filing of federal individual income tax returns. The form provides information particularly about tax form 1040, which is used to file individual federal income tax returns.

(2) Cash management is the efficient collection, disbursement, and investment of cash in an organization while maintaining the company’s liquidity. In other words, it is the way in which a particular organization manages its financial operations such as investing cash in different short-term projects, collection of revenues, payment of expenses, and liabilities while ensuring it has sufficient cash available for future use.This entails shortening of cash collection periods, regular follow ups for collections, negotiation of favorable terms with suppliers allowing delay in payment periods, and preparation of cash flow forecasts. Businesses also use of technology to speed up cash collection process. They must do all of this while maintaining adequate amount of funds to meet daily operations.Its importance being:

(i) To satisfy day-to-day business requirements;

(ii) To provide for scheduled major payments;

(iii) To face unexpected cash drains;

(iv) To seize potential opportunities for profitable long-term investment;

(v) To meet requirements of bank relationships;

(vi) To build image of creditworthiness;

(vii) To earn on cash balance;

(3)   

The Sarbanes-Oxley Act of 2002 is a federal law that established sweeping auditing and financial regulations for public companies.

Lawmakers created the legislation to help protect shareholders, employees and the public from accounting errors and fraudulent financial practices.The legislation, commonly referred to as SOX, sought to both improve the reliability of the public companies' financial reporting as well as restore investor confidence in the wake of high-profile cases of corporate crime. It was enacted on July 30, 2002 The Sarbanes-Oxley Act is arranged into 11 sections, or titles. Two sections of particular note are Section 302 and Section 404. Lawmakers created the legislation to help protect shareholders, employees and the public from accounting errors and fraudulent financial practices.

(4)Various types of audit are as follows:

• This is an examination of the policies and procedures of an entity or department, to see if it is in compliance with internal or regulatory standards. This audit is most commonly used in regulated industries or educational institutions.

• Construction audit. This is an analysis of the costs incurred for a specific construction project. Activities may include an analysis of the contracts granted to contractors, prices paid, overhead costs allowed for reimbursement, change orders, and the timeliness of completion. The intent is to ensure that the costs incurred for a project were reasonable.

• Financial audit. This is an analysis of the fairness of the information contained within an entity's financial statements. It is conducted by a CPA firm, which is independent of the entity under review. This is the most commonly conducted type of audit.

• Information systems audit. This involves a review of the controls over software development, data processing, and access to computer systems. The intent is to spot any issues that could impair the ability of IT systems to provide accurate information to users, as well as to ensure that unauthorized parties do not have access to the data.

• Investigative audit. This is an investigation of a specific area or individual when there is a suspicion of inappropriate or fraudulent activity. The intent is to locate and remedy control breaches, as well as to collect evidence in case charges are to be brought against someone.

• Operational audit. This is a detailed analysis of the goals, planning processes, procedures, and results of the operations of a business. The audit may be conducted internally or by an external entity. The intended result is an evaluation of operations, likely with recommendations for improvement.

• Tax audit. This is an analysis of the tax returns submitted by an individual or business entity, to see if the tax information and any resulting income tax payment is valid. These audits are usually targeted at returns that result in excessively low tax payments, to see if an additional assessment can be made.