To Audit or Not to – That is the Question!
Each year, most Americans are aware that April 15th marks the deadline to file our personal taxes with the Internal Revenue Services (IRS) for the previous calendar year. As we know, business owners and organizations are required to file taxes as well. Just like the IRS can audit your personal taxes, your business and/or organization can be subject to an IRS audit based on any tax discrepancies. However, tax audits are not the only audits that could or should be taking place at your business or organization. For the sake of this blog, let’s define auditing, discuss the various types of audits, and its benefits.
When you think of a business audit, think of a system or mechanism to control the quality and accuracy of financial data or information that is relayed to the government. It is imperative to conduct small business audits of a business or organization’s tax returns and accounting records to ensure compliance with government rules and regulations. These audits are most effective when performed semi-annually.
There are three types of small business audits, which are listed below.
Internal Audit
External Audit
IRS Audit
Internal Audits, also referred to as “self-audits” are facilitated by a staff member, such as an auditor or accountant, or a compliance department depending on the company size. The sole purpose of this type of audit is to examine a business or organization’s finances in addition to standard operating procedures, policies, processes, compliance with local and federal state laws, funding sources, etc. At the conclusion of the internal audit, a written report of the findings is shared internally and reviewed.
Types of internal audits may include, but are not limited to the following:
Compliance Audit
Environmental Audit
Operational Audit
Information Systems Audit
Performance Audit
Ad Hoc Audits
Now, let’s briefly discuss external audits, which are commonly known as an independent audit. Contrary to internal audits, external audits are performed by a professional or contracting agency outside of the business or organization. The auditor is not affiliated with the business or organization and therefore can remain unbiased during the functions of the audit.
The business or organization receives a financial audit review report that follows the (GAAP) Generally Accepted Accounting Principles. This report comprises solid advices as to why the external auditor is compelled to believe that a business or organization has failed or passed the audit.
Types of external audits may include, but are not limited to the following:
Compliance Audit
Financial Statements Audit
Operational Audit
The third and final type is an IRS Audit. On average, an IRS Audit ensues when an auditor uncovers potential tax errors in tax returns filed for the previous three-year period. Factors that may trigger an IRS audit may include, but are not limited to the following:
Remember that it is important to conduct routine audits. The reported findings will help inform your business model and operations, thus preventing large scale financial implications as your business or organization grows. Auditing is a crucial component for each business and organization and should not be taken likely. Make sure that you have selected the most qualified and cost-effective auditing solution that meets your business or organization’s needs.
If you, your business and/or organization needs support with external auditing, program planning and development, please check out HIVE Connex's Services, and schedule a complimentary consultation to determine your business needs. Please contact us via email at HIVEConnex@gmail.com, dial (267) 420-2076 or contact us.
Feel free to contact us directly with any questions on this particular blog topic, or any of our other HIVE Connex Blog Posts that provide insight and informative content about: auditing, competitive intelligence, the benefits of process improvement, how to grow your business, creating a vision board, decision making, business planning, branding in the marketplace, public speaking, creating a social media presence, business communication practices, business ethics, how to generate profit margins, managing through unprecedented and challenging times, building high performance teams, business elevator pitch, community engagement and budget administration.