A VAT audit report is a vital document that reviews and certifies the accuracy of a company’s VAT compliance, reconciling reported liabilities with accounting records.
Whether you’re a finance manager, accountant, or small‑business owner, mastering the vat audit report process helps you avoid penalties, optimize cash flow, and demonstrate transparency to stakeholders. In this guide, we’ll cover every aspect—from vat journal entries to input VAT accounting treatment, including vat workings, and explain how to calculate taxable amount from VAT amount.
We’ll also show how to present VAT in balance sheet, record the correct vat payable entry, and complete the entry for VAT payable when you settle with the tax authority. Plus, learn how mazeed can streamline your entire VAT audit journey.
Purpose and Components of a VAT Audit Report
A thorough VAT audit report serves to:
- Validate Compliance: Ensures that your VAT returns match your accounting data.
- Identify Discrepancies: Highlights errors in vat journal entries, vat workings, or reconciliation between VAT control accounts and returns.
- Demonstrate Accountability: Shows that you follow proper input VAT accounting treatment and correctly record vat payable entry amounts.
- Support Decision‑Making: Provides management with clear insights into overall VAT exposures, including outstanding vat in balance sheet balances.
Key components include:
- Executive summary of findings
- Reconciliations of output and input VAT
- Detailed vat workings supporting reported figures
- Listings of required vat journal entries
- Recommendations for process improvements
Read more: VAT Accounting Entries: Input and Output VAT
Pre‑Audit Preparation and Documentation
A- Collecting Source Documents
Before drafting your vat audit report, gather:
- Sales invoices showing output VAT
- Purchase invoices showing input VAT in balance sheet
- Bank statements for VAT payments
- Customs declarations (if applicable)
B- Reviewing VAT Journal Entries
Accurate vat journal entries form the foundation of a clear vat audit report in UAE. Typical entries include:
- Sales transactions with VAT credited to the VAT liability account
- Purchases with VAT debited to the input VAT in balance sheet asset account
- Settlements where you drill down vat workings to confirm amounts
C- Reconciling VAT Control Accounts
Compare the VAT control account balance to the net VAT liability on your returns. Discrepancies often arise from missing entry for V-AT payable postings or mis‑classified input VAT.
D- Detailed VAT Workings
Including robust vat workings in your audit report clarifies how figures were derived. Your workings should:
- Break down VAT‑inclusive totals to net and VAT components using the method for how to calculate taxable amount from VAT amount
- Show period‑by‑period movement in the VAT control account
- Demonstrate offsets between output VAT and recoverable input VAT
Example VAT Working:
- Total VAT‑inclusive sales: 1,050,000 AED
- VAT rate: 5%
- Taxable amount = VAT amount ÷ (VAT rate / (1 + VAT rate))
- VAT amount = 1,050,000 – (1,050,000 ÷ 1.05) = 50,000 AED
This clear template for vat workings reduces audit queries and supports your VAT audit report.
E- Input VAT Accounting Treatment
Under proper input VAT accounting treatment, VAT paid on purchases is recorded as a recoverable asset. Steps include:
- Record Input VAT: Debit input VAT in balance sheet for the VAT portion of each purchase.
- Classify Expenses: Ensure non‑recoverable VAT is booked as an expense, not an asset.
- Offset in Returns: Net your recoverable input VAT against output VAT to determine your vat payable entry.
Correct input VAT accounting treatment ensures your VAT audit report reflects genuine recoverable balances.
F- Recording VAT in Balance Sheet
VAT in balance sheet appears as:
- VAT Payable (Liability): Net output VAT owed after offsetting input VAT.
- Input VAT (Asset): Cumulative recoverable VAT on purchases exceeding output VAT.
A concise section of your balance sheet may show:
- Current liabilities: VAT Payable – 120,000 AED
- Current assets: Input VAT Receivable – 80,000 AED
This clear presentation of vat in balance sheet highlights your net VAT exposure and aids the auditor’s assessment.
Read more: How to File VAT Return in UAE
Automate VAT Compliance with mazeed!
| We’re the first in region to combine AI-powered accounting software with FTA-certified experts in one place. Just scan your invoices and let the platform automate VAT compliance: ✓ Transactions Record ✓ Apply for exemption & reliefs ✓ File Your VAT Return ✓ Real-time report |
VAT Journal Entries and VAT Payable Entry
Accurate vat journal entries and the vat payable entry itself are critical for your VAT audit report:
- On Sales Invoicing: Credit the VAT payable account to record output VAT.
- On Purchase Invoicing: Debit input VAT in balance sheet for recoverable VAT.
- On VAT Remittance: Debit VAT payable and credit cash/bank when you settle with the authority.
Maintaining these entries correctly prevents reconciliation issues when auditors review your VAT control accounts.
How to Calculate Taxable Amount from VAT Amount?
Knowing how to calculate taxable amount from VAT amount is essential when vendors quote VAT‑inclusive prices. Use this formula:
Taxable Amount = VAT Amount ÷ (VAT rate / (1 + VAT rate))
For VAT at 5%:
- Divide the VAT amount by (0.05 ÷ 1.05) to derive the net base.
Accurate calculations here feed directly into your vat workings and bolster the credibility of your VAT audit report.
Read more: Guide to UAE VAT Calculation
Entry for VAT Payable and Liability Settlement
Your entry for VAT payable on your accounting system should mirror the amount due on the VAT return. Then, when payment is made:
- Debit VAT Payable: Remove the liability from your books.
- Credit Cash/Bank: Reflect the settlement outflow.
This correct entry for VAT payable process ensures your VAT control account resets to zero, ready for the next reporting period, and your VAT audit report shows no outstanding liabilities.
Common Pitfalls and Best Practices
Avoid these common errors in your vat audit report:
- Omitting VAT Workings: Without detailed vat workings, auditors may question your figures.
- Misclassifying Input VAT: Ensure only recoverable VAT is booked as a balance sheet asset.
- Incorrect Liability Records: Double‑check your vat payable entry matches the return.
- Neglecting Reconciliations: Regularly reconcile VAT control accounts to avoid end‑of‑period surprises.
Best practices include monthly reconciliations, standardized vat workings templates, and ongoing training on input VAT accounting treatment.
mazeed’s Expertise in VAT Audits
mazeed, a leading financial consultancy in the UAE, excels in guiding companies through flawless VAT audit report preparation. mazeed’s services include:
- Reviewing and correcting vat journal entries
- Designing comprehensive vat workings templates
- Advising on input VAT accounting treatment
- Verifying VAT in balance sheet presentations
- Ensuring the correct entry for VAT payable processes
By partnering with mazeed, you gain confidence that every aspect—from VAT payable entry to how to calculate taxable amount from VAT amount—is handled expertly, minimizing audit risk and freeing you to focus on core business activities.
FAQs about VAT Audit Report in UAE
What is a VAT audit report?
A VAT audit report is an official assessment conducted by tax authorities or auditors to verify a business’s compliance with VAT laws, accuracy of tax filings, and proper maintenance of financial records.
How do you audit VAT?
VAT auditing involves reviewing a business’s tax returns, invoices, accounting records, and supporting documents to ensure that VAT has been correctly calculated, collected, and paid to the tax authority.
What is a VAT report?
A VAT report, often called a VAT return, is a periodic statement submitted by businesses to the tax authority showing total sales, purchases, input VAT, and output VAT for a specific tax period.
How to get a tax audit report?
A tax audit report is usually prepared by a certified auditor or tax consultant. Once the audit is complete, the report is generated, reviewed, and submitted to the relevant tax authority if required.
How long does a VAT audit take?
A VAT audit can take anywhere from a few days to several weeks, depending on the complexity of the business, the volume of transactions, and the completeness of the financial records.
What is the purpose of the tax audit report?
The purpose of the tax audit report is to provide an independent review of a business’s tax compliance, detect any discrepancies, and ensure that VAT laws have been properly followed.
What is the main purpose of the audit report?
The main purpose of an audit report is to provide an objective evaluation of a company’s financial statements or tax records, confirming whether they present a true and fair view in accordance with applicable standards.
Is tax audit required?
A tax audit is not mandatory for all businesses, but it may be required by law if a company crosses certain turnover thresholds or if selected by the tax authority for a detailed review.
How to accept a tax audit report without DSC?
In most jurisdictions, accepting a tax audit report without a Digital Signature Certificate (DSC) is not permitted for electronic submissions. However, some authorities may allow manual or alternative methods based on approval.
Can we withdraw a tax audit report?
A submitted tax audit report generally cannot be withdrawn, but corrections may be allowed by the tax authority through a revised filing process or voluntary disclosure, depending on local tax laws.
What is DSC in audit?
DSC stands for Digital Signature Certificate, and it is used to securely sign electronic documents such as audit reports or tax filings to verify the identity of the signer and ensure the integrity of the data.
How do you respond to a tax audit?
To respond to a tax audit, you should review the audit notice carefully, gather and organize all relevant financial records, cooperate with auditors, provide clear explanations, and seek professional advice if needed to ensure compliance.
A robust VAT audit report relies on meticulous documentation, clear vat workings, accurate vat journal entries, and transparent presentation of vat in balance sheet . By mastering the entry for VAT payable, applying correct input VAT accounting treatment, and knowing how to calculate taxable amount from VAT amount, you ensure compliance and avoid costly penalties. Engage mazeed for expert guidance and transform your VAT audit into a seamless, risk‑free process.
Disclaimer: This publication is for informational purposes only and should not be considered professional or legal advice. While we strive for accuracy, we make no guarantees regarding completeness or applicability. mazeed, its members, employees, and agents do not accept or assume any liability, responsibility, or duty of care for any actions taken or decisions made based on this content. For official tax guidance, please refer to the UAE Ministry of Finance and the Federal Tax Authority
