The termination of a legal entity through liquidation, reorganization, merger, accession, or during bankruptcy proceedings is always accompanied by an unscheduled documentary tax audit.
The purpose of such an audit is to determine the completeness of tax and fee accruals and payments, the accuracy of reflecting business transactions in tax and accounting records, and the presence or absence of tax debt or other unsettled budget liabilities.
In this regard, liquidation should be viewed as a procedure that requires advance documentary preparation and a preliminary analysis of accounting and tax records before liquidation actions begin.
The risks for a company during an unscheduled audit by a regulatory body due to liquidation include potential additional tax assessments, the application of financial penalties and interest, demands for primary documentation within tight deadlines, the liability of responsible persons, including criminal liability, and procedural consequences affecting the timeline for completing the liquidation process itself.
The lack of preliminary document analysis and systematic preparation for a tax audit usually leads to a situation where the company is forced to collect documents under time pressure, restore primary documentation, explain discrepancies, and simultaneously adjust accounting and reporting.
A key stage in preparing for a tax audit is the preliminary analysis of documents and accounting indicators to identify and eliminate inconsistencies, as well as to build an evidentiary base confirming the reality of business transactions.
It is advisable to conduct such an analysis systematically, with cross-referencing of primary documents, accounting registers, bank statements, tax returns, and financial statements for the periods subject to audit, involving the company’s accountant, lawyer, and, if necessary, an auditor to ensure both the accuracy of accounting data and the proper legal framing for the subsequent submission of documents.
First of all, the completeness and adequacy of primary documents for all transactions are verified. The basic list includes contracts and appendices (specifications, addenda, terms of reference), documents confirming performance/delivery (acts of acceptance/services rendered, sales invoices, transfer-acceptance certificates, waybills, and other documents for goods or services movement), settlement documents (invoices, payment instructions, bank statements), and internal corporate documents.
Separately, the legal and formal validity of primary documentation is assessed: the presence of mandatory details, dates, signatures of authorized persons, consistency of party names, nomenclature, volumes, value, payment/delivery terms, correct references to contractual grounds, and the absence of obvious inconsistencies that could be used as an argument to challenge expenses or tax credits.
Next, a reconciliation of primary documents with accounting registers and tax reporting is performed. This includes checking the timeliness and completeness of transaction recording in the relevant periods, the absence of gaps between the primary document date and the date of accounting entry, the correctness of closing periods, and the logical consistency of trial balances with tax returns and financial statements.
Adjustments, carry-forwards, reclassification of debts, write-offs, accruals, and other operations affecting the tax base and financial result are verified separately.
Within the preliminary analysis, high-risk transactions requiring in-depth review for sufficient evidence are identified. These include significant or non-typical transactions by amount or nature, transactions with high-risk counterparties, transactions with foreign counterparties, returns of goods, discounts/bonuses, offsets, debt forgiveness, related-party transactions, significant advance payments, transactions with fixed assets, inventory write-offs, free transfers, and operations prone to varying interpretations of economic purpose or reality of performance.
Inventory and property analysis is conducted as a separate block. This checks for properly documented inventory of assets and liabilities, compliance of accounting data with actual balances, documentation for write-offs, correctness of fixed asset accounting (commissioning, depreciation, repairs/improvements, disposal), and documents confirming ownership or usage rights for assets.
A discrepancy between the actual state of assets and accounting records usually serves as a basis for additional inquiries and assessment of the correctness of expense formation and tax consequences.
Additionally, settlements with counterparties and the budget are analyzed. An up-to-date picture of accounts receivable and payable is formed with confirmation of its reality (reconciliation acts, payment documents, claim correspondence, restructuring/write-off documents). Simultaneously, the state of settlements with the budget is checked, including tax debts, overpayments, agreed/unagreed liabilities, and the correctness of payroll-related tax accruals and payments.
Based on the results of the preliminary analysis, it is advisable to form a structured document package for the regulatory body, a document register, and a consistent position on potentially controversial transactions. If errors or discrepancies are found, a legal and accounting mechanism for their elimination is developed, taking into account allowed correction procedures.
Conducting a preliminary document analysis before starting the liquidation procedure ensures predictability and risk minimization during an unscheduled documentary tax audit and allows for the preparation of all primary documentation. Organizationally, such an analysis is carried out with the mandatory involvement of a lawyer and the company’s accountant.
