The Audit of Transactions with Customer-Owned Raw Materials in Foreign Economic Activities

Abstract

The specifics of audit of the transactions with customer-owned raw materials in foreign economic activities (FEA) are shown. It is determined that FEA, being risky ones, need special attention from an external auditor. When scrutinizing such transactions, the latter need to be aware that when a FEA transaction is signed, including one for processing of customer-owned raw materials, the requirements of legal and regulatory acts being in force in Ukraine need to be duly considered. It is demonstrated the Custom Code of Ukraine regulates the work arrangements with customer-owned raw materials in FEA and specifies custom regimes for FEA transactions, with implications for their taxation. The taxation, in turn, is regulated by the Tax Code of Ukraine and has specifics in assessment and payment of value added tax and profit tax. The eligibility for tax credit on the commodities purchased and thereafter exported as raw materials in the custom regime of processing occur on general grounds specified in Section 5 “Value Added Tax” of the Tax Code of Ukraine, and the tax liabilities occur on the date when a customs cargo declaration is submitted for execution. According to Article 39 of the Tax Code of Ukraine, taxation of profits from transactions with related nonresident entities has some specifics. An example of the authors’ review of transactions with customer-owned raw materials in FEA, recording of the results of auditor procedures and the obtained evidences in working documents is given. The format of a working document is subject to professional opinion of an auditor. The test of recording transactions on processing of customer-owned raw materials beyond the boundaries of custom territory of Ukraine is proposed as a working document. The working document, intended to confirm the fact of collecting auditor evidences in order to form the auditor opinion on financial reporting, covers the content of transactions on processing of customer-owned raw materials, information sources for an auditor (primary documents, accounts records), audit procedures and their results, with the auditor’s opinion about the authenticity of recorded information (its confirmation). The working documents enable for regulation and quality assurance of audit procedures, and for unification of the auditor’s actions.

Keywords

• audit, transactions with customer-owned raw materials, foreign economic activities, working documents, transaction testing, quality of audit.