Accounting: Financial Statements, Standards and Bookkeeping
This domain tests the accounting records a taxpayer must keep, the financial statements produced from them, and the adjustments that convert accounting profit into taxable profit.
Core rules
- Article 95 DTA requires business taxpayers to maintain prescribed books and records. The Commercial Code also requires traders to keep a daybook, ledger and inventory, and to retain records for the statutory period.
- Financial statements normally include a balance sheet, income statement, cash flow statement, statement of changes in equity and notes. Iranian reporting standards are IFRS-based, with tax-specific rules layered on top.
- Tax accounting follows accrual concepts but differs from financial reporting on depreciation, provisions, non-deductible expenses, exempt income and inventory valuation.
- Companies subject to audit must have financial statements audited by a licensed auditor. Tax examiners reconcile the audited statements, ledgers, VAT returns and tax return.
- Electronic records and system controls are increasingly important; missing supporting documents can lead to rejection of expenses.
Worked example
Accounting profit is 500 million rials. Add back 20 million of non-deductible entertainment, deduct 30 million of exempt income, and adjust for tax depreciation that is 10 million lower than book depreciation. Taxable income = 500 + 20 − 30 − 10 = 480 million. At 25%, tax is 120 million rials. The reconciliation must be documented in the tax return and working papers.
Traps
Reporting book profit as taxable profit; forgetting permanent differences; using book depreciation without adjustment; poor record retention; and treating provisional estimates as deductible before they meet tax conditions.