Annexure 15: Study of Profit and Loss Account and Balance sheet - Model All India GST Audit Manual 2023 [CBIC] - GST

Annexure 15: Study of Profit and Loss Account and Balance sheet Financial Statement, Accounts and GST i. Every business organization draws up financial statements in respect of any financial year comprising (a) the Balance Sheet as on the last day of the financial year {summarising the value of owings (what it owns) and owings (what it owes) or the value of assets, liabilities and capital} of the entity as on the said last date, (b) the Profit and Loss Account or the Income Statement {summarising the revenue receipts during the year from its business operations (does not include receipts of a capital nature) and the expenses incurred for earning the said revenue during the year}. ii. The aforesaid financial statements are generally referred to as the final accounts of the entity and are prepared for every distinct legal entity (as opposed to a distinct person in terms of Section 25 ). Thus, branch offices of a company/entity having business operations in more than one State will have consolidated financial statements in respect of all its transactions across the country, unless the different State Units ( distinct person in terms of Section 25 ) are independent profit centres recognized as such by the company itself. Thus, in cases where the different State Units are not recognized as independent profit centres, the returns filed by the entity in a particular State cannot be mapped on to the financial statements on a one-to-one basis. In such cases (and even otherwise) every unit prepares a trial balance as at the end of the year (which also forms the basis for preparation of financial statement); the trial balance comprises balances/totals in respect of each item of revenue, expenditure, capital receipts, capital expenditure, assets/properties and liabilities/obligations. Thus, wherever the audited final accounts, i.e. profit and loss account and balance sheet are not available, the reconciliation of the return with books of accounts should be carried out vis-a-vis the trial balance. It may be noted that the trial balance may not be readily available in respect of individual units of a multi-location entity (viz. some Pan-India entities with centralised control on debtors, creditors and payments) operating on a SAP/ERP platform where the vendors, customers or the bank accounts are operated centrally. In such cases the trial balance has to be extracted with some effort. iii. Different kinds of businesses entities like companies, banking companies, insurance companies, public utility (e.g. electricity generation/transmission/ distribution) companies, etc. are governed by different statutes which have generally prescribed formats for the preparation of final accounts and also the information to be contained in such accounts. By and large, the formats and content prescribed under the Companies Act vis-a-vis final accounts for companies is a standard document in the accounting world and all relatively large undertakings, whether or not companies, adopt the same. iv. Schedule III to the Companies Act, 2013 prescribes the norms, content and format of the balance sheet and the profit and loss account of a limited company. The Schedule also contains instructions for preparation of the financial statements. v. An important component of the financial statements is the Notes to accounts which contain detailed information and break-up regarding different items of the information and contents of the Balance Sheet and the Profit and Loss Statement. vi. The most important of which, for our purposes, is the Statement of Profit and Loss (Part-II of the said Schedule III). This statement comprises information regarding Total Revenue which has two significant and separate components viz. Revenue from Operations and Other Income . This statement also has information regarding Cost of materials consumed , Purchases of Stock-in- Trade , Changes in inventory levels, Employee costs, Finance costs , Depreciation and Other expenses. On the basis of this information, the operating profit is derived and disclosed; it is from this profit that adjustments towards prior periods and exceptional items, tax, effect of discontinuing operations are made and the net resultant earnings are derived. vii. The general instructions for preparing this Statement (as contained in this Part) specify that companies (other than finance companies i.e. those generally engaged in financing operations of other business entities or extending/accepting loans/deposits) are required to separately disclose in the Notes to the Accounts, revenue from sale of goods/products, sale/supply of services and other operating revenues and the said Notes are to also separately disclose Excise Duty (now GST). In respect of finance companies, the revenue from operations shall include revenue from Interest and Other financial services. In case of supply of services, supplies under broad heads are to be separately disclosed. viii. Each such category of supply would refer to an outward supply in terms of GST and the values of such supplies as appearing in the financial statement/trial balance should be traced to the respective ledger accounts in the books of accounts. The business operations of an entity may comprise different kinds of goods/services and transactions involving them may be recorded differently in the books by different entities. For instance, an entity engaged in supply of readymade garments may have separate ledger accounts for supply of hosiery, shirts/trousers, kids clothing, woollen garments and accessories. These items may attract different rates of tax, depending on their classification. In such a case, the validation of outward supplies declared in the return may ideally begin with seeking a break-up of the aggregate value of each category of outward supply declared in the said returns into its various items/sub-items i.e. hosiery, shirts/trousers, kids clothing, woollen garments and accessories. The value of each such item/sub-item (separately recorded by the auditor in a document forming part of his working papers) may be validated by the auditor through the profit and loss statement/trial balance. The scheme of validation to be adopted by the auditor has to depend on (and, ideally, follow) the scheme of classification of his activities/transactions and the level of detail adopted by the supplier in the ordinary course of his business. ix. The details regarding Other Income in the Profit and Loss Statement are to be classified in the Notes as Interest income (in case of other than finance companies), Dividend , net gain/loss on sale of investments (i.e. shares, debentures, bonds, etc.), and other non-operating income. It is this component of Other Income which is of particular significance in verifying whether all other supplies (transactions that are incidental or connected, whether related or unrelated, to the primary operations of the entity) have been disclosed properly in the GST returns or not. Hence, the details of this component should be carefully examined by the auditor and every item should be co-related to the corresponding entry in the trial balance and from there be verified from the appropriate ledger accounts in the books of accounts maintained by the entity. x. In the process of seeking a break-up of the aggregate value of each category of outward supply as referred to in Para above, the auditor may encounter categories of such supplies which are not in the nature of the primary activities of the business entity. For instance, the said entity engaged in the supply of readymade garments may have, during the said period, sold off/disposed empty cartons in which it may have received the items that it sells. It may also have sold off/disposed old furniture or old air conditioners/computers. The entity is engaged in the business of selling readymade garments and the supply of empty cartons (related to its main business), air conditioners/computers (not so related) is not part of its main activity; but it is connected to/incidental therewith. The supply of these items is also leviable to tax and has been clubbed together in the outward supplies declared in Table 3.1 of GSTR-3B . But the same will not appear in the Revenue from operations component of its profit and loss statement; rather, the same will be disclosed as Other Income component. Accordingly, each such item may be verified with respect to the ledger accounts. xi. The auditor should pay particular attention to the mapping of every item of revenue recorded in the books of accounts (appearing on the income side of the profit and loss statement or credit side of the trial balance) on to the break- up of outward supplies referred to above. Care should be taken to ensure that every item of income appearing in the profit and loss statement/trial balance (except the no supplies referred to below) plus the deemed supplies explained below is included in some item of the break-up of outward supplies as derived from Table 3.1 of GSTR-3B and the aggregate value of all such items of income appearing in the profit and loss statement/trial balance (as adjusted for no supplies and deemed supplies ) matches with that of the aggregate value of outward supplies declared in Table 3.1 of GSTR-3B . If not, it is indicative of supplies on which tax not being paid/short paid. xii. It is important to note that the outward supplies reported in Table 3.1 of GSTR-3B may include values of supplies for which no corresponding values are available in the profit and loss statement and/or trial balance (except where any asset has been permanently alienated, in which case there will be a write/written off account/balance in the profit and loss statement/trial balance and also a reduction/disposal in the fixed asset account, in case of such an asset). These are the deemed supplies of Schedule I of the Act. The major transactions in this category are transfers of goods or cross-charge on account of services to other branch offices/depots/agents/units (this will reflect as ITC in case of receipts under similar circumstances). In the case of goods, such transactions are easily verifiable from the stock register/statements and/or goods transfer register. The valuation in such cases is not a problem if the same is a B2B transaction where credit is fully available; the value in the invoice suffices. However, in case of B2C transactions of this nature, valuation rules 27-31 will have to be applied. Transactions in services under such circumstances present a different problem, however. Where centrally procured services have not been dealt with in accordance with the ISD mechanism, there could be entries (and tax invoices) relating to supply of services by the Head Office (HO) to a Branch Office (BO) or by one BO to another Bo or by BO/s to HO (who are all distinct persons within the meaning of section 25 ). It is in such cases that the auditor has to tread with caution as even the fact that whether services have actually been supplied as claimed or the issuance of tax invoices is just an attempt to move credit around from one such entity to another entity in view of the second proviso to rule 28 . The auditor should carefully examine and seek evidence/documents to validate whether the supplier has the wherewithal and has deployed the quantum of resources necessary for the generation of services claimed to have been so provided to other units because no service can be supplied unless it is generated through some resources or method. xiii. There is another category of transactions which are reflected in the profit and loss statement/trial balance but are not part of supplies liable to tax as reflected in Table 3.1 of GSTR-3B. These are the no supplies of Schedule III. Of particular importance in this category are supplies of land, supplies of building (before completion certificate), high sea sales or supply of goods in the customs area before filing a bill of entry. These are all business transactions involving goods or services between different persons with consideration and, as such, they are recorded in the books of accounts (and reflected in the profit and loss statement/trial balance) but they have been declared as not being leviable to GST and, hence, they will not appear in GSTR-3B. xiv. The value of inward supplies liable to reverse charge , as disclosed in Table 3.1 of GSTR-3B may also be sought to be dis-aggregated similarly with reference to supplies of goods and/or services on which payment on reverse charge has been notified. This can be validated with reference to entries on the debit side of the trial balance or the expenditure side of the profit and loss statement. While very few goods have been notified as taxable on reverse charge basis, there is a long list of services on which tax is payable on reverse charge by the recipient. xv. Accordingly, the value shown at serial (d) of Table 3.1 of GSTR-3B should be broken-up into its separate components. An illustrative list could be as follows:- Goods Services Description Value Tax Description Value Tax Import of the Goods Import of Services Separately for each item dealt in (e.g. cashew, biri leaves, etc.) (separately for Inter- State and Intra state) (separately For IGST, CGST, SGST, Cess) Services received from GTA (separately for Inter-state and Intra-state) (separately for IGST, CGST, SGST, Cess) Legal Services Services received from Government/ LT (service-wise\separately) TDR or FSI Long term lease of land Add rows for other RCM services if received xvi. Each of the above items (except possibly in case of goods) will correspond to different entries in the trial balance from where they can be referred back to the respective ledger accounts. The value of import of goods is separately disclosed in the Notes to accounts. Receipt of certain services (e.g. services from Government, import of services, TDR/FSI, etc.) may not be available as separate headings in the trial balance. These have to be ascertained from the ledger of the personal accounts to whom payments have been made e.g. Government, Builder, Foreign Supplier, etc. The values in respect of each of the above items is to be validated with reference to the ledger accounts and/or purchase register, where available, via the trial balance. xvii. The ITC availed is to be validated with reference to Table 4 of GSTR-3B . The ITC availed on account of import of goods, import of services and other inward supplies liable to tax on reverse charge basis is to be validated in the manner specified above. ITC availed on account of receipts from ISD is not readily verifiable from the trial balance or profit and loss statement (except where HQ- Branch/Branch-HQ/Inter-Unit services are billed on cross-charge basis), since this does not involve any monetary consideration. Thus, ISD credit is to be verified with reference to the Journal book in which they are specifically entered. There are other means of verification of such ISD credit, particularly the GSTR-2A . xviii. By far, the largest component of ITC is reported at serial (e) of Table 4 of GSTR-3B under the head All other ITC . This is the most frequent and most widely availed ITC since it pertains to purchase/receipt of goods and/or services in the normal, primary and routine course of business, relating to the essential activities of the business entity. xix. This item too should be segregated by the auditor under its various components viz. inputs, input services, capital goods and each of these components may be further segregated into each of its various heads (e.g. inputs into different goods, HSN wise, input services into various services, again HSN wise and capital goods into each of different category of capital goods). In so far as inputs are concerned, these are generally recorded separately category-wise and may be traced back from the dis-aggregated GSTR-3B to the separate ledger accounts via the trial balance. Input services too can be validated similarly. In this context, it must be remembered that no credit is availed on account of anything that is not recorded in the books of accounts and is not reflected in the profit and loss statement/trial balance (except in case of receipt of deemed supplies or ISD). If so, it would be indicative of a case of credit being wrongly availed . xx. As explained above while every item of income/receipt (including deemed supplies but excluding no supplies ) is to appear in the outward supplies of GSTR-3B, failing which it would be indicative of tax being not/short paid. However, every item of expenditure will not appear in Table 4 of GSTR-3B since credit is not available in certain cases ( Section 17(5) of the Act). However, where the credit is not otherwise blocked under Section 17(5) , and if it is still not availed it may be indicative of the credit availment being either deferred to a future period or the credit not being availed in which case it may be indicative of the purchase/receipt being suppressed; this needs to be investigated further. Examples of some types of Account that require thorough examination Sl. No. Examples of some types od Account that require thorough examination Remarks 1. Introductory Director s Report and Auditor s Notes The Annual Report prepared by a company inter alia contains the following: a) Director s Report : This gives information like overall financial results of the company, important happenings during the year and future plans of the company. Information in respect of advance received and order booked. Some of the important happenings like fire and loss of material in the company, details of new products launched, change in the marketing pattern etc. reported in the report may be useful to the auditor. It will help to know the business model of the company. It may contain certain details such as: Classification of goods and services dealt with. It will help audit officers to determine applicable rate of tax. So, audit officer shall have adequate knowledge in classification of goods and services disclosed by the auditee. Incorrect classification of goods or services can lead to incorrect GST payment. Foreign Exchange earned during the year; Foreign Exchange paid during the year, e.g. may be on account of taxable services received by the Auditee where he is liable to pay GST under reverse charge mechanism. Advance received. Audit officer should then concentrate on operational liability (current recurring) where such advance is accounted for. Information on the operations carried out by the Auditee during the year under report. This may help in finding the exact nature of services provided by the Auditee. It may show some of the Directors having commission and some having received sitting fees. Are these receipts liable to GST? If, yes what will be the value of supply? Besides sitting fees if other facilities like car, flat, club membership etc are provided whether all such will be part of consideration or not? Audit officers should follow provisions of sec 15 read with rule 27 of the CGST /SGST Act, 2017. If any Director helped the company by standing as a guarantor in taking a loan whether that will be treated as supply or not? We may get information in respect of Seconded by Foreign entity to render services to an Indian Entity not as employee of Indian entity. This importation of service is treated as supply as per entry no.4 of Sch. I appended to section 7 of the CGST /SGST Act, 2017. b) Auditor s Report: These may be reports of Statutory auditor or Internal auditor or C AG Audit. In the case of statutory audit, a separate report under CARO (Companies Auditor s Report Order, 2003/2015) is required to be given. The same should be studied to find out any qualified/adverse opinion given by the auditors which may have impact on GST liability. For example, Auditor may report that goods meant for outward supply, available in stock were not reconciled or provision for obsolete items have not been made during the year. Tax auditor may like to examine such opinion in detail. Company Auditor s Report Order (CARO) may be studied to find out whether the fixed assets records have been maintained properly or whether physical verification of inward supply and goods meant for outward supply was under taken and whether any discrepancies were noticed on such verification or whether the company has maintained proper records for unserviceable or damaged goods. It also shows disputed tax liabilities separately for Customs, Income Tax, GST etc. Cases booked under Income Tax may be examined to find out any implication on GST. In the case of Public Sector unit, C AG report and comment of the company available in the Annual Report should be examined. Disclosure of accounting policies followed in the presentation of financial statement Auditor s Notes may contain accounting standards with the disclosure of significant accounting policies followed in the preparation and presentation of financial statements. Such policies often give additional valuable information, e.g. The auditee may disclose revenue as per AS 7, where the principles of accrual system of revenue are acknowledged. But, the auditee for GST purpose may disclose supply value from works contract on certified bill basis. 2. P L A/c Profit Loss Account: The Profit and Loss Account shows major items of expenditure and income. This is one of the important documents used during desk review to find out the overall working of the unit. In the main body of the Profit Loss Account, only major heads of expenditure and income are given and the constituents of these headings are given in a separate annexure. The said annexure should be studied in detail. P/L account may be studied for the following purposes: The most important step of audit is to determine the Total Turnover in the State and the tax liability of the auditee. This information in the P L A/c may be available as Sale or Operating Revenue or in any other similar nomenclature. However, this part denotes only the operating income, i.e. income from the main activity of business. The auditee may have other incomes like scrap, insurance claims receipt, profit on sale of fixed assets, commission received, erection and commissioning, freight and insurance recovered etc. which may be examined in detail to find out the exact nature of such incomes and whether these have any bearing on the valuation or whether these are liable for GST. They should carefully study the nature of business income some of which may have accrued from the supply of taxable services and the balance from the supply of non-taxable services. The exact nature of these services may be determined from the supporting documents such as vouchers, bills or contracts. The primary documents to be examined in this case are: Supply Invoices; Bank Statement; Debtors Ledger; Party-wise customer list. To ascertain the veracity of the figure reported in the Sale A/c vis- -vis the Turnover disclosed in the Returns, additional documents like Sale contracts, Delivery Challan, Material Transfer Notes may be examined. 3. General Ledger A/cs for various expenses Scrutiny of expenses ledger is very important for an Audit Officer as the expenditure accounts have direct impact on availment of ITC, valuation of finished goods and payment of GST on the taxable value, value of inward supply on which GST is pay able under Reverse Charge. (e.g. Expense Accounts: Purchase, Packing and Forwarding Expenses, Advertisement Expenses, Transportation/Freight Charges, Outward supply Expenses, Sale Promotion, benefits to employees, entertainment expenses etc.) The General Ledger may contain various accounts depending upon the scale of business of the auditee. Hence, selection of account for scrutiny is an important task for an auditor. For this purpose, accounts should be selected from the Trial Balance (if available) which gives names of all the accounts maintained by a unit. While making the detail examination - All the important Purchase accounts need to be checked to find out whether any rejection of raw material or short receipt of input have taken place which will have impact on the ITC availed by the auditee. Raw material consumption account may also be verified to find out with regard to writing off obsolete material. Expenditure accounts where recovery of expenses is possible like Packing and Forwarding Expenses Account, Advertisement Expenses Account, Transportation/Freight Charges Account, Outward supply Expenses Account etc. may be scrutinized in order to find out any recoveries being made from the customer. From the Trial Balance, the income accounts (these types of accounts will have credit balances) should be selected for scrutiny and the exact nature of such income s accounts should be found out from the study of the documents mentioned in the relevant ledger accounts. Some of these accounts might have direct impact on the valuation of finished goods or it may also affect the GST liability. 4. Income Tax Audit Report The Tax Audit Report is given by Chartered Accountant. The said report is given in the form 3CD and it is required to be enclosed along with the Income tax return filed by the taxable person. Depreciation statement as per the provisions of Income Tax Act enclosed with Tax Audit Report may be verified to confirm the correctness of availment of ITC on capital goods. As per Clause 27(a) of the said report, amount of ITC availed or utilised during the year and its treatment in the Profit Loss Account and treatment of outstanding ITC in the account is required to be given. Tax Auditor may compare the said information with the information as per taxable value records. As per clause 35(a) to 35(c), details like opening stock, purchases, outward supply and closing stock of trading activities and in the case of manufacturing unit quantitative details or principal items of raw materials, finished goods and by- products showing opening stock, purchases, consumption, outward supply, closing stock, yield of finished goods, percentage of yield and shortages/excesses is required to be given. This information may be used by Tax Auditor to verify the input-output ratio. The reasons for excessive shortage/ excesses and whether GST has been paid on the outward supply of raw material as reported in the tax audit report may be inquired into. 6. Internal Audit Report Internal Audit Report This is the report submitted by internal auditors appointed by the company which looks into day-to- day activities and the systems followed by the unit. This report can be used for cross verification of loss of any input, excess availment of ITC, collection of additional consideration. Also the implications on the past period for any short payment or non- payment of tax can be examined from this report. Internal Auditor also reports about stock verification and in case of shortages the ITC availment needs to be examined. 7. Fixed Asset Schedule [available in Balance Sheet] This schedule contains the details of addition, deletion to the asset and depreciation charged thereupon. The examination thereof has multiple impact in terms of turnover arising out of miscellaneous income and reversal of ITC under certain conditions. An asset can be deleted upon various circumstances it may lose its working condition and hence may be written off. In such case, it may yield a scrap value. Whether any consideration has been received in this case can be verified from the Other Income/Miscellaneous Income A/c. This will have an impact on the Turnover. An old asset may also be permanently transferred to any related or distinct person. In such case, the matter should be looked into from the angle of Schedule I of Sec 7 of the SGST/ CGST Acts, 2017 . In case ITC has been availed on such asset, such has to be reversed. Furthermore, running assets are depreciated in prescribed rates. In case depreciation has been charged on a value inclusive of GST, such ITC has to be reversed. Verification of the claim of depreciation on capital goods should be made from the Income tax return filed by the taxable person or from the Income Tax Audit Report ( Form 3CD ). There may also be possibilities of recording both expenses as well as income relating to a particular asset in the same account, thus affecting the net balance of such account. In this case, each Ledger Account for individual assets need to be checked to ascertain whether there are any sale or disposal or transfer of such asset hidden in such account. Presence of such may have impact on the tax liability of the auditee. 8. Other Income/Miscellaneous Income Other Income/ Miscellaneous Income Other income/Miscellaneous Income as reported in the P L A/c comprises of income from all those sources which do not form its operating revenue. A supplier in GST has its operational revenue generating from supply of goods or service or both. But there are other sources from which he may earn something more which is not booked under the A/c heads of Sales or Services or Revenue, as the case may be. Such incomes in a consolidated manner are known as Other incomes/Miscellaneous Income. Some major sources of other/miscellaneous income are income from: Sale of scrap Receipt of insurance claim Profit on sale of fixed assets Commission received Penalty / demurrage/ compensation received from employee/customers/suppliers Rental income Interest from Bank Interest from debtors for late payment Revaluation gain on fixed assets Gain on exchange rate Discount received Dividends Freight and insurance recovered etc. Many of such incomes are subject to GST such as sale of scrap or sale of fixed assets, as the nomenclature sale suggests. But there are many other account heads forming part of miscellaneous income (except a few) which also qualify as supply and should be forming a part of the GST Aggregate Turnover. Thus, these incomes are required to be examined in detail to find out the exact nature of such incomes and whether these have any bearing on the valuation or whether these are liable for GST. 9. Unbilled revenue Un-billed revenue is actually recorded in the books of account and reflected in the financial statements, but in different accounting periods and it arises mainly in the context of supply of services. This arises from the concept of revenue recognition i.e. the question as to when should revenue in respect of a transaction or activity be recognized and recorded as such in the books of accounts and taken therefrom to the financial statements. Accounting Standard 9, issued by the Institute of Chartered Accountant of India, deals with revenue recognition and states that, generally: Revenue from sales or service transactions should be recognised when the requirements as to performance ...... are satisfied, provided that at the time of performance it is not unreasonable to expect ultimate collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. It may so happen that the terms of the contract stipulate that the invoice in relation thereto may be issued on the happening of a certain milestone, say the seventh day of the month following the month in which the work has been certified. But in such a case the revenue accrues on certification even though the invoice should be issued next month. If such an event were to happen in the last month of the financial year, the books of accounts and the financial statements would recognize the revenue on this count and the turnover declared in the financial statement would include this. However, since the invoice is issued in the next year, this turnover would be reported in the GST return for the next year. Thus, for the purpose of reconciling the turnover declared in the returns for any year (say, Y1), the value of unbilled revenue in respect of the preceding year (Y-1) shall be added to the turnover declared in the financial statements of Y1. Similarly, the unbilled revenue as at the end of financial year Y1 should be deducted from the turnover declared in the financial statements of Y1. This information is also available in rows A and I of Table 5 in Part II of Form GSTR-9C . The exact amount of unbilled revenue as at the beginning and as at the end of any financial year can be verified from the financial of the relevant years; however, in respect of 2017-18, this exercise would have to be carried out separately for the period between April, 2017 to June, 2017 since this information may not be readily available from the financial statements as such. 10. Un-adjusted Advance Un-adjusted Advances Un-adjusted Advances in respect of which GST has been paid during the financial year in accordance with the provisions of Section 12 and 13 of the Act also need to be added to (where such advances have been received during the current financial year) or deducted from (where such advances have been received during the preceding financial year) the turnover declared in the financial statements for the current financial year. This adjustment is necessary for reconciliation since GST liability on advances received has been discharged in the year in which such advances has been received while the revenue in respect of the said advances has been recognized in the books of accounts/financial statements of either the preceding or succeeding year; 11. Other adjustments Other adjustments Other adjustments are also required to be carried out to the turnover as declared in the books of accounts/ financial statements drawn from such books of accounts in order to reconcile the said turnover with the turnover declared in the GST returns. Such adjustments have been listed at serial numbers 5E to 5O, except serial numbers 5H and 5I thereof (which have already been discussed above, of the Reconciliation Statement in Form GSTR-9C . It may be noted that although, in accordance with the provisions of section 35(5) read with section 44(2) of the Act, the reconciliation statement may not be required in cases where the annual turnover is below Rs. 2 crores, the aforesaid adjustments will apply to every taxpayer the turnover declared by whom in his returns is to be compared with the turnover declared in his books of accounts and the financial statements drawn on the basis of such books of accounts. The adjustments noted here in this para, and the preceding paras, should be recorded separately in a Tabular manner showing clearly the nature of the adjustments (e.g. unbilled revenue, credit notes, advances, etc.), the value as per the returns, the value as reflected in the books of accounts or financial statements and the difference, if any. That there will be differences in the turnover as per the return and the turnover as per the books/financial statements is inevitable and the two can be reconciled within the framework of preparation of financial statements and maintenance of books of accounts and the framework of the GST Law. However, where the turnover as declared in the returns does not reconcile with that recorded in the accounts even after carrying out the aforesaid adjustments, the reasons for such difference may be examined in the light of the evidence and records presented to the auditor and explanations may be sought from the taxpayer. The tax implications of such unreconciled differences may be worked out, the workings and documentation should be made part of the working papers/file/record of audit and should form part of the audit team s report which is also made available to the taxpayer.