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Value added tax and financial reporting.


Value added tax (VAT) is a consumption tax because of its extensive rang, more rapid recovery, and competition to attract investments, governments have been. International competition to attract investment due to corporate tax rate, the trend is downward. And instead to lay and collect taxes on goods and services tax governments are obliged this article is pointed to a most complex of financial accounting report zone, that is accounting value added tax.


AFIT is a process that:

1-Paying tax in cash in the future. And refund incomes of the current and previous treatments. as assets and the debts of retarded taxes are registered. Till the financial condition of company is shown in right way. And

2-in the case of shown financial turnover of company the costs of incomes tax is reported. Accounting for income tax and its application in financial reporting and tax planning before the millennium, there was little concern liberal groups and gatherings. But recently in these recent years the zone of AFIT are noticed by accounting and taxing researches. And AFIT are converted to a most active zone in accounting and setting up taxes.

However accounting of incomes tax and taxation needs to proficiency but that is very important that to know the accounting of incomes tax reports. Only tax information in financial statements is reported. Provide useful information to stakeholders, such as investors and creditors is the goal of financial accounting. The main and distinct characteristics of income tax accounting firm to provide information about companies tax according to the accepted general principles.(general accounting accepted principles-GAAP).which is described the principles of other economic activities of company. The law of value added tax VAT provides a necessary prerequisite for the development of accreditation services however, without sufficient attention to the development or auditing standards and regulations in force in the country it is conceivable. Auditing standards in force in the country of accreditation criteria and the auditors must provide audited financial statements prepared in other proceedings based on accounting in part 80,entitled"report of the auditors, audit in certain cases," section 91,entitled"anoverview of financial statements" and part 92,entitled"implementation of adaptive methods to deal with financial data" had expected.

Value added:

Value added tax law which according to the 85th paragraph of IRBL is passed from Islamic republic of Iran parliament economic commission in 7th may 2008. And parliament agreed with its pilot implement in 29th January was approved by shoraye neghahban in 24th may 2008. And with parliamentary letter number 95/6273 in 9th Jun2008 has been filed. The application was communicated to join.

Declaration of value added:

Value added is a value which is increased regarding to some activities and phenomena. That is division in economic values. in other saying value added appear in economic environmental by working with different devices, that possibility of use it for earning more marketing share, reaching to more marketing share and reaching to more development improvement. Social welfare and other life indexes in oxford dictionary value added accounting is defined: difference between sales and materials and other duties which are received directly. Indeed value added is a value which is added to prior activities(internals).or the final production value after deduction goods values and interface services(internals).in other saying production value when appears that we work with different devices [3].

Economic value added (EVA):

Economic value added is an index predicate to VBM (?)Which is controlled the entire value creation in a business deal. Economic value added isn't a strategy, but it is a way that we measure our results with it. The index of economic value added is created by Mr. Eastern Stewart. For declaration of challenge among companies those have challenge in measuring their financial turnover. Economic value added with calculating profit after deduction output that stockholders are expected .which is declared the economic value added. Also it pursed the price of each share more correct than incomes, income of each share, and output of stockholders rights or other accounting index. And supported by tentative studies powerfuly. Creation improvement in economic value added means increasing wealthy of stockholders. [1]

MVA (Market value added):

Inverse of economic value added that is an assessment for internal turnover MVE is a scale for external turnover. Quality turnover Estimate Company from market according marketing value and value of bazar share with capital asset which is invested company compared.

The Relationships Between EVA and MVA:

Although economic value added is used primarily for performance management. But also it is used to assessment management by external analys it. With this belief that the best internal turnover should be appeared in company's shares. Several studies have been conducted the relationship between two variables (MVA and EVA). And the results too complicated. Although the shares of companies with positive economic value added have tendency to the best turnover than those have negative economic value added. But the differences are very teeny. And that communication is not the case each year. This relationship was weak, perhaps due to timing analysis. (How fast the economic value of their work has stock)or the market value added of economic value added is influenced by different factors. Following the implementation of longer--time goals such as value added tax, information transparency, expand the tax base is achievable. Since the tax is calculated on the billing mechanism based on the calculation of Iranian economy could also increase [1]. Evolution in tax law's structure with no doubt have influenced on accounting and auditing system. one of the relevant tax law, tax audits carried out in 2001,it was predicted that it would affect his career in audit. Value added tax law in the same frame of the law allows taxpayers benefit from professional audit services to audit value added tax and report compliance with the conditions and guidelines of the state tax agency will determine in Article27 is predicted. Their ability to provide continuous audit profession that is far beyond the audit of financial statements prepared in accordance with accounting standards. There are several grounds for expansion of these services and some believe the most potential fields available, for example, prospective financial information is now being widely used by investors and other users. But the expansion of the scope of accreditation services without the necessary legal support isn't feasible.

Importance of value added:

However, other sources of oil supply, government spending, borrowing from the central bank and so can be. But past experience shows that our reliance on nontax revenues is unreasonable and unsustainable. And reliance on tax revenues is of the safest methods of financing government spending. Since in recent years due to lack of funds and tax problems in our country's economy created by the public sector. This means that the government has had its budget deficit will be financed through the banking system and inflation the introduction of such a tax system with a broader base of value added tax can increase government tax revenues and play an important role in reducing the inflation tax problem. Following the tradition of past taxes become popular in the countries. No taxes as well as value added tax in recent years has been welcomed by countries. Because the value added tax on goods and services which is calculated from the tax base is expanded and the possibility of tax collector provides much potential the top income tax or property caused in many cases .it may refer car to the government's income generate new revenue, stable and flexible to meet the ever increasing costs of the main reasons for the choice including value added tax in some countries has been. Rest of the way value added stages of production and of broad tax base, reducing the tax rate that justifies its feature of this method is considered to encourage economic activity.

Documentation and financial reporting:

Value added tax on the cost of goods and services or the value of goods and services contained in the bill is calculated. However, the allocated allowances and tax basis of goods and services, value added tax isn't calculated. Value added tax to be paid on receipt of the tax law is Article11 tax paid on the goods, invoice date, date of transaction fulfillment or delivery, whichever is prior. This approach makes it possible to levy the first time and solves the problem of bad claims. How to deal with tax return goods are blacked out in law. But in the Act mandate that set by the tax affairs organization, this is a refundable tax. Payment of tax payers should prove sufficient to preserve documents. It is important bill sales tax affairs according to the sample preparation and should be kept. If you use the vending machines, tape machines are replaced. Tax payers should have their tax returns each quarter, and within 15 days of the expiry of lodge and pay their own taxes. Article22 of the crimes Act is predicted very heavy sanctions for violations of the law. Which is sustained the guarantee of law implementation.

Ssap number 4 is a standard that is issued in 1974 by UK accounting standard board as value added tax. This standard committal is as follows:

1--value added tax should not be reflected as income in the profit and loss as a result of net income as reported.

2--value added tax of fixed assets and other items are not refundable in case they should be considered part of the cost.

Amounts in accordance with accounting standard number 3, which is collected on behalf of third parties, and therefore doesn't lead to an increase in equity income isn't operational. As well as the effects of the value added tax collected from customers shouldn't be recognized as income. The amount of the receivable is recorded as a liability. When the taxes are paid for purchasing goods or services are refundable or dicker able .should not is written as cost of goods or services. The amounts paid as receivables are recorded at that time. But if the value added tax is refundable purchase or not, is a component of cost of goods and services purchased. Under clause 5 of Article17 the tax component cost of direct tax law is considered acceptable subject. The amendment to Article 4 the assets purchased or produced for use as taxable. So on the property, excluding value added tax, the cost of the asset. According to Article 17, the taxes paid for machinery and equipment, production lines, they will be refunded. IN this case, Article 17, Clause 4 of the conflict and ambiguity must be resolved before enforcement. Liabilities and demands relevant to refundable taxes related to the existence of the legal right to purchase, in accordance with paragraph 34 of Accounting Standard number 1 presentation of financial statements, the purchase together. Serious attempt to manage the accounting value, which is to minimize inventory levels to ensure that the following interests for organization.

0-Reduce the cost of funds blocked in inventories.

0-Reduce storage costs.

0-Avoid losses caused by injuries storage.

0-Reduce shipping and handling costs.

Value added tax audit:

According to the Article 27 of law taxpayers can make tax audit or audit agency for auditing memorize public accountants. The tax auditor is required to comply with the following:

1--Comment on the adequacy of accounting documents in accordance with the provisions of the value added tax rules for auditing and accounting standards. And

2--Determining the taxable basis and tax basis of the provisions of this Act and the provisions of the laws, precepts, and standards.

According to the clause number 1 of this article, the tax audit report, in compliance with legal requirements, with no address is accepted by the tax administration [8].

The qualitative characteristics of information value:

It is generally expressed by interested parties; consider relevant information that is valuable in predicting. So the information is believed to be the ability of a company to disclose the sale of high grade relevance. The sales are agent main precondition of economic success in the future of the business units that make profits and cash flow. From this perspective, the criterion value can be considered as relevant information. The remaining amount of the value of output (sales), after deducting the materials needed to produce goods and services purchased sold for distribution between the parties concerned; remains. This suggests that changes value with changes in sales is a direct relationship. Given that indicates the efficiency and competitiveness of business units is directly related to future profitability. Productivity ratios such as profitability, capital productivity in relation are to the company's future value forecasts. So we can say that the efficiency ratios based on value added value such as number of employees, value added and value added to the working capital productivity measures are reasonable, the forecasts are very useful to aid decision seem. Another feature is that the comparison value is greater than the profit comprehensive concept of value added is the ability to compare. IN other words, compared with a net value will be less affected by accounting methods. IN addition, value added, net income is computed under the influence for added value, increase the wealth of the business before handing it shows only part of the net profit for the owners of wealth creation that is given.


Value added tax accounting (TA) in developing costing (direct) in which the classification has been revised cost and actually just the raw material cost component of direct is costs. Value added tax could reduce reliance on oil revenue to states and to narrow the scope of tax evasion with respect to economic conditions and the anticipated rate of inflation, it seems appropriate Accountants audit the implementation of the law will deal with this, a very simple financial reporting to value added tax. But the audit documentation, particularly for maintenance of adequate records and procedures designed to address the more difficult it is to some extent. Value added tax is a multistage sales tax based on a percentage of the value added at each stage is obtained value added tax includes three types of production, consumption and income, the largest manufacturing base of low tax and the tax base of the low tax base makes And the tax base is. Of the low tax base makes and the countries of Europe and many other countries use this type. Of gross national income to be put on production. Important reasons to implement the value added tax increase in the share of government tax revenues, reducing tax pressure on productive investment and economic productivity and efficiency of tax system. At the end of a rather brilliant suggestion regarding our accounting and also, the experts in tax matters, it is recommended to run any program, introducing the value added tax must be paid in cooperation expert.


Article history:

Received 6 September 2013

Received in revised form 20 October 2013

Accepted 25 October 2013

Available online 10 November 2013


[1] Value added tax accounting accordance accounting principles from Thesis Mr. Ghadir Shdorkam, February 2012

[2] Value added tax law, approval in 7th May 2008 by Iranian Parliament.

[3] Accounting standards codify management, accounting standards of audit organization 2007.

[4] Fish, Roy, finance Act SA June/July 2008.

[5] FTC Business taxation, FTC: London 2001.

[6] Kpmg, Indirect Taxation and Business-A Global perspective.

[7] WTA, Vat Rate, comparisons,, 2008.


(1) Saeid Mohamadi, (2) Fatemeh Rahnama, (3) Javad Badalii

(1) Accoounting Group, Islamic Azad University Tabrizscience and research unit, Tabriz Branch, Tabriz Iran

(2) Accounting Group, Islamic Azad University Tabriz, Tabriz Branch, Tabriz Iran

(3) Computer Group, Islamic Azad University Maku Branch, Maku, Iran

Corresponding Author: Saeid Mohamadi, Accoounting Group, Islamic Azad University Tabrizscience and research unit, Tabriz Branch, Tabriz Iran

Table 1: These penalties are as follows.

PENALTY                                 OFFENS

75% up to date                      Not registered
100% tax                           Bills not issued
100% tax                     Price not inserted correctly
25% tax                    A sample of the complete lack of
                                   information bill
50% tax                        Failure to submit returns
25% tax                   No exert documents and evidences or
2% per month (taxes not         Delay in payment of tax
paid to the delay)
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Article Details
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Author:Mohamadi, Saeid; Rahnama, Fatemeh; Badalii, Javad
Publication:Advances in Environmental Biology
Article Type:Essay
Geographic Code:7IRAN
Date:Oct 1, 2013
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