The truthful answer is, maybe. An auditor is there as an independent person to give a statutory report. In doing so, it has been said that an auditor has many roles:
A small business audit is never fun, but there is no need to fear the possibility of one. In fact, an internal audit can be a welcome way to spot business inefficiencies and plan better for the future. Even external audits can help you stay on good terms with shareholders, investors, and lenders. As far as FTA audits go, they are nothing to fear either, as long as you are accurate about your income and deductions. At the end of the day, the best way to prepare for any business audit is to keep well organized financial records.
We’ll provide more information below about different types of small business audits, but all business audits share some things in common. The auditor, whether that’s someone within your business or an external auditor, will do a thorough evaluation of your accounting books and financial statements.
You can either provide a physical copy of your books or set up the auditor with login access to your accounting software. The auditor usually will check a year’s worth of financial data. Ideally, your financial records—whether kept in physical files or electronically—should be well organized by year and category of income or expenses.Otherwise, an audit might take much longer than necessary.
When an audit is finished, you should receive an audit report. The audit report will contain a statement about the auditor’s identity, the scope of the audit, and whether the auditor found the company’s financial records to be accurate or not. Audit reports generally follow a certain structure to comply with generally accepted accounting principles.
You should be familiar with three main types of business audits:
An internal audit is a self-audit that’s scheduled and conducted by a representative of your own company. Many businesses do an internal audit once per year to ensure the accuracy of their books and financial statements. An internal audit is for your own purposes you don’t submit the results to an external organization.
Larger companies usually have audit departments, but a smaller business might employ just one or two people to conduct audits. Internal auditors don’t just check a business’s finances. They also check company policies, procedures, and processes to check compliance with internal guidance and federal, state, and local laws.
Public companies generally conduct internal audits to update shareholders and investors on how a company is performing. Even if you’re not a public company, internal audits can be an important way to catch operational issues.
The more common kind—is when the IRS sends you a letter describing the possible errors in your tax return. You can reply with documentation to support your position. Field audits are when you meet an FTA examiner at your place of business, accountant’s office, or local IRS office. The examiner will look through your financial records and books to see if they match up with the tax return and comply with tax laws.
The chance of being selected for an IRS audit is extremely low—less than 1% for most types of businesses. However, if you are selected, you should have your accountant, tax professional, or business attorney present during the audit.
An external audit, also known an independent audit, is an audit that’s conducted by someone outside the organization. This is called an independent audit because the auditor has no loyalty or responsibility to the business that could create a conflict of interest.
Usually, businesses conduct independent external audits to comply with some kind of legal requirement.
The external auditor will provide you with an audit report that follows generally accepted accounting principles. In their report, they’ll have to provide an opinion as to whether your company passed the audit. An auditor might take one of the following stances in business audit:
If a company doesn’t receive a clean opinion, they might need to correct errors in their financial records and re-do the audit.
The more common kind—is when the FTA sends you a letter describing the possible errors in your tax return. You can reply with documentation to support your position. The examiner will look through your financial records and books to see if they match up with the tax return and comply with tax laws.
The chance of being selected for an FTA audit is not extremely low types of businesses. However, if you are selected, you should have your accountant, tax professional, or business attorney present during the audit.
What our audit team will not do is create a problem that did not exist in the first place!
To find out more, call us on +971 52 9750690 and speak to one of our audit experts.