Using any types of audits is important for tax preparers when it comes to investigation. It is a process that’s usually conducted by a government agency and designed to examine the tax returns of an individual, business, or organization. If you are working as a CPA or an accountant and are facing an IRS audit, then you need to have a good understanding of the process.
Here are eleven different types of audits that may help you gain a better understanding of what you are up against.
External Audits
An external audit is done in order to ensure that various business operations are following the law. It is to ensure the accuracy of financial statements. External auditors typically verify that a business’ financial transactions have been processed correctly. They are focused on business practices and making sure that laws are not being broken.
Internal Audits
Internal audits are typically performed by the business itself. They are performed in order to ensure that the business is adhering to certain standards and laws. They are often used to comply with state regulations. Internal audits are also used to make sure that the company is following best practices and that employees are doing their jobs correctly.
Performance Audits
A performance audit is performed in order to examine the operations of a government agency. It is usually done in order to make sure that the agency is using tax money effectively, following the law, or using the maximum amount of tax breaks.
Financial Statement Audits
Financial statement audits are a standard form of an audit. A financial statement audit is the most common type of audit. Audits that are performed by an independent entity to verify that an individual or business’s financial statements are accurate, including the proper tracking of a company’s revenues, liabilities, and assets.
Operational Audits
An operational audit is a type of audit where the purpose is to examine an entity’s internal controls. An operational audit is done to ensure that an employee’s or company’s procedures are being carried out correctly. This type of audit is separate from the financial audit that’s required by law.
Single Audits
A single audit of the financial statements is also known as an audit of federal awards. This type of audit is designed to make sure that auditing requirements are met. It is a type of audit that’s completed by a single entity.
Employee Benefit Plan Audits
An employee benefit plan audit is a type of audit where the purpose is to examine a group health plan, pension plan, or other types of employee benefit plans. The audit is designed to make sure that the plan is being funded correctly and that the government is receiving its full amount of tax credits.
Compliance Audits
A compliance audit is a type of audit that’s performed after a major event occurs. For example, if your company is facing a merger, then you can have a compliance audit performed in order to make sure that all legal issues have been handled correctly. The audit is a way of making sure that all legal issues have been handled correctly.
Information System Audits
Information system audits are a type of audit that’s performed by an auditor who is examining a company’s information technology resources in order to ensure that the IT is being used correctly. This type of audit is mainly performed by the company itself, with assistance from the auditor.
Forensic Audits
A forensic audit is a type of audit where the intent is to uncover any fraud. It is meant to determine whether any financial misconduct or irregular behavior has occurred.
Payroll Audits
An internal payroll audit is a type of audit that’s performed by an individual who is examining the company’s payroll records. The audit is meant to make sure that the payroll records are accurate and that the company is following the U.S. Department of Labor (DOL) and IRS guidelines.
Conclusion
Navigating the tax code can be complicated if you don’t have the right tools and understanding. As a tax accountant, it’s your job to make sure that your clients are receiving the maximum amount of deductions and credits that are legally allowed. By having a working understanding of the tax code and the audit process, you can ensure that you can easily pass an audit and ultimately help your clients.
Keystone Tax Solutions is the best professional tax software that will help you give your client peace of mind while gaining additional revenue through audit protection. Let us help you handle the stress of doing taxes and easily pass an audit. Contact us today to get started!
