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International Quality Measurement System (IQMS)
Auditing Standards

Standard #1: Consideration of Large, Unusual or Questionable Items

Purpose: This standard measures whether consideration was given to the large, unusual or questionable items in both the pre-contact stage and during the course of the examination.

Overview: This standard encompasses, but is not limited to, the following fundamental considerations: Absolute Dollar Value, Relative Dollar Value, Multi-Year Comparisons, Intent to Mislead, Whipsaw Impact, Industry/Business Practice, Compliance Impact, etc.

Key Elements:

1. Balance Sheet and Schedule M Items Considered
2. Forms 5471 and/or 5472 Items Considered
3. Income/Deduction/Credit Items and Inter-company Transactions Considered
4. Scope of Examination was Appropriate

Standard #2: Compliance Responsibilities

Purpose: This standard measures whether consideration was given to all tax aspects of a taxpayer including those entities in the tax-payer's sphere of influence and responsibility.

Overview: Compliance responsibilities include the coordination of the inspection/pick-up of related, prior and subsequent returns, and information returns with the domestic agent.

Key Elements:

1. Consideration of Prior and Subsequent Returns
2. Consider Related Returns
3. Compliance Items Considered

Standard #3: Examination Depth and Records Examined

Purpose: This standard measures whether the issues examined were completed to the extent necessary to provide sufficient information to determine the substantially correct tax.

Overview: The depth of the examination was determined through inspection, inquiry, observation and analysis of the appropriate documents, ledgers, journals, oral testimony, third party records, etc., to ensure full development of relevant facts concerning the issues of merit. Interviews provided information, not available from documents, to obtain an understanding of the taxpayer's financial history, business operations and the accounting records in order to evaluate the accuracy of books and records.

Key Elements:

1. Adequate Interviews Conducted
2. Adequate Exam Techniques Used
3. Fraud Adequately Considered and Developed
4. Issues Sufficiently Developed

Standard #4: Findings Supported by Law

Purpose: This standard measures whether the conclusions reached were based on correct application of tax law.

Overview: This standard includes consideration of applicable law, regulations, court cases, revenue rulings, etc. to support technical/factual conclusions.

Key Elements:

1. Correct Technical/Factual Conclusion Reached
2. Appropriate Research Conducted

Standard #5: Penalties Properly Considered

Purpose: This standard measures whether applicable penalties were considered and applied correctly.

Overview: Consideration of the application of appropriate penalties during all examinations is required.

Key Elements:

1. Recognized, Considered and Applied Correctly
2. Computed Correctly

Standard #6: Workpapers Support Conclusions

Purpose: This standard measures the documentation of the examination's audit trail and techniques used.

Overview: Workpapers provided the principal support for the international examiner's report and documented the procedures applied, tests performed, information obtained and the conclusions reached in the examination.

Key Elements:

1. Examination Plan Was Prepared
2. Fully Disclose Audit Trail Techniques
3. Legible and Organized
4. Adjustments in Workpapers Agree with International Examiner's Report
5. Activity Record Adequately Documents Exam Activities

Standard #7: Report Writing Procedures Followed

Purpose: This standard measures the presentation of the audit findings in terms of content, format and accuracy. All necessary
information is contained in the report, so that there is a clear understanding of the adjustments made and the reason for those adjustments.

Overview: This standard addresses the written presentation of audit findings in terms of content, format and accuracy.

Key Elements:

1. Applicable Report Writing Procedures Followed
2. Correct Computation of Adjustments

Standard #8: Time Charged Appropriate

Purpose: This standard measures the utilization of time as it relates to the complete audit process.

Overview: Time is an essential element of each auditing standard and is a proper consideration in the rating of each standard.

Key Element:

1. A. Case File Supports Time Charged

Special Focus Item

Probe for Intercompany Transaction Issues

Purpose: This standard measures whether adequate consideration was given to intercompany transactions.

Overview: The examination of intercompany transactions represents the heart of the International Enforcement Program. The most prevalent issues on non-CEP corporate returns involve intercompany allocations. These issues generally are highly factual and thus require the international examiner to have a detailed knowledge of the taxpayer's operations. In addition, data on independent companies is needed to determine if the taxpayer is dealing with its affiliates at arm's-length. It is not intended that international examiners make de minimis adjustments but rather look only to those situations where there have been significant deviations from arm's-length dealings, or where there has been a significant shifting of income. Due to the large variety of factual patterns in which IRC 482 issues arise, the elements and definitions below are, by necessity, generalized. These represent the minimum requirements for the proper development of an intercompany allocation issue. The international examiner has the responsibility to use ingenuity in light of the particular facts in the case and employ whatever additional procedures are necessary to properly develop the case.

Key Elements:

1. Identification of Intercompany Transactions
2. Identification and Development Comparability Data
3. Issue Development
4. Relief Procedures
   

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