Mich. Admin. Code R. 205.2001 - Definitions

Rule 1. As used in these rules:

(a) "Audit sampling" means the application of an audit procedure to less than 100% of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class.

(b) "Audit workpapers" mean workpapers created by the auditor. The auditor shall retain the audit workpapers and may only share them with the audited person or his or her or its authorized representative to the extent disclosure is allowed by statute. The workpapers provide support for the auditors opinion as to the proper tax owed for a tax period.

(i) Workpapers include information about the procedures followed, the tests performed, the information obtained, including identification of the documents or accounts that constitute the evidence pertinent to the auditors review and conclusions about an audited persons tax liability. The workpapers may include samples of the documents or accounts that support the auditors conclusions .

(c) "Field audit" means the examination of the books and records of a person to determine the proper tax liability for a tax period. A field audit includes an examination of the audited persons books and records to test if they are sufficient to accurately determine the tax liability for a tax period. All of the following apply:

(i) The books and records of a person are sufficient if they allow transactions to be traced back to the source or forward to a final total. For example, bank deposit slips, receipt books, credit card charge slips, cash register tapes, canceled checks, credit card sales slips, invoices, bills of lading, and shipping documents are source documents.

(ii) Sales transactions must identify the item sold. Sales records include, but are not limited to sales slips, receipts, invoices, cash register tapes or other original sales documents.

(iii) Documents prepared for internal use by the audited person are not source documents for purposes of tracing a final total to a transaction if the documents do not provide detail at the transaction level and if the documents were created in a process for which the auditor cannot obtain reasonable assurance that the transactions were accurately reproduced from the original documents.

(d) "Indirect audit procedures" means the determination of the tax liability through an analysis of the audited persons business activities using information from a range of sources beyond the persons declaration and formal books and records.

(e) A "review" generally requires the examination of only one or two documents but in some instances may require a review of other related documents to substantiate an item that was reported, or that should have been reported on a tax return or claim form. A review is not a field audit. The audit standards for field audits, rule 2 through rule 11 of these rules, do not apply to reviews.

(i) Generally, department employees who conduct reviews are not required to meet the minimum educational standards for auditors outlined by the Michigan civil service commission but they must meet the minimum educational requirements that are commensurate with the scope and expertise necessary to conduct a review.

(ii) Department employees who conduct reviews do not visit the taxpayers place of business.

(iii) Reviews do not require an understanding of the entity or the entitys internal controls. Reviews do not require an assessment of audit risk and do not involve sampling.

(iv) Department employees who conduct reviews are subject to the standards for the treatment of the public set forth in the taxpayer bill of rights rules, R 205.1001 through R 205.1013, the ethical conduct standards set forth in the state ethics act, 1973 PA 196, MCL 15.341 through 15.348, as well as civil service commission rules and regulations. Employees are also subject to the department policies and procedures set forth in the treasury employee handbook regarding confidential information, employee conduct, training and development. Employees are also subject to the policies and procedures set forth in the taxpayer rights handbook regarding conduct, including but not limited to conflicts of interest, confidentiality, fairness and impartiality, and courtesy and consideration.

(v) The results of the review may be reported to the taxpayer or claimant through a letter, a notice of refund adjustment or a notice of intent to assess.

Notes

Mich. Admin. Code R. 205.2001

2015 MR 9, Eff. May 13, 2015

An obvious error in R 205.2001 was corrected at the request of the promulgating agency, pursuant to Section 56 of 1969 PA 306, as amended by 2000 PA 262, MCL 24.256. The rule containing the error was published in Michigan Register, 2015 MR 9. The memorandum requesting the correction was published in Michigan Register, 2015 MR 9