Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board

Chapter 4
Books and Records
Characteristics
The books and records of a Type A dealership are very similar to other cash businesses and will
not be the focus of our discussion. Dealership Type’s A, B and C were discussed in the Financial
Status chapter.
The books and records of a Type B and Type C automobile dealership whose efforts are
concentrated on the sale of new vehicles have several features the examining agent should keep in
mind before and during the audit process:
1. Voluminous Records
With literally hundreds of books, thousands of accounts, and millions of entries, new
automobile dealerships may have the most "full" set of books and records of any
non-regulated, non-traded company. Source codes, grouping papers, and the manufacturer’s
accounting manual are the key to not getting lost and conducting an effective audit. These
books are almost exclusively in an electronic format with subtotals carried forward
throughout the course of the year.
2. Overwhelming
Voluminous records, in conjunction with experienced taxpayers and representatives make the
agent’s job difficult at first. A well planned and organized audit, embracing SAIN, will help
the examiner focus the examination, mitigating the "overwhelming" factors.
3. Financial Statements
One of the most important tools is the manufacturer’s statement which is prepared regularly
(usually monthly) and sent to the manufacturer who keeps well abreast of the dealership’s
business operations. These statements are standardized per the factory manual and can be
reconciled to tax items. This process can establish confidence in the books in order to curtail
reconciliatory and verification activities.
4. Accounting Manual
Each factory has its own accounting manual, typically 500 pages or so of format and
procedure. This is a must for the examining agent and should be obtained for use at the
beginning of the audit. The manual should be used as a tool throughout the examination.
4-1