New Vehicle Dealership: Audit Technique Guide (ATG) - Tapa blanda

In preplanning an examination of an automobile dealership, a review of the return, as is customary, could pose interesting questions to begin the audit. An agent knows there are a variety of internal research tools with which to start. By securing information from the Integrated Data Retrieval System (IDRS), an agent may be able to perform a preliminary comparative analysis of the income and deduction items as well as the balance sheet which would provide initial information useful to the agent. Many dealerships have begun conducting business transactions utilizing e-commerce, or the Internet. Using a search engine to look at a dealership’s website may provide some background information on a specific dealership. The return may be a consolidation of two or more entities created for the benefit of the automobile dealer. The separate entities provide the dealership the ability to clarify operations and distinguish activities. If the return is a large consolidated operation, flow-through schedules or other accompanying statements are disclosed on the return identifying these activities. New automobile dealerships maintain good internal controls and prepare complete books and records. Dealerships as franchisees, properly book sales activities to conform to the financial statement requirements imposed in the form of the manufacturers statements by the franchiser, the factory. Once the income is booked, some dealerships may incorrectly treat or classify them for tax purposes. This may occur through shifting of business activities to related entities. An entity chart is helpful in visualizing the organizational structure. It is important that all related returns are gathered. One entity may own the land where the dealership operations are and rent is paid to the shareholder. Another entity may be an insurance company formed to facilitate the paper flow of extended service contract sales or a management company is formed to receive management fees. All three are related entities and related party transactions should be examined. An understanding of each entity’s activities, business purpose and tax implications would be required.