January 22, 2020
How to Prepare For A Financial Audit
It’s important to note that IRS audits aren’t the only type of business audit. In fact, there are several reasons you may need or even want to have a financial audit done. In addition, there are actually four types of IRS audits, a correspondence audit, an office audit, a field audit, and a random review.
A field audit is by far the most serious, so we'll focus on how you can prepare for them in this post.
Financial Audits Are Scary
Reviewing a financial audit checklist is overwhelming for anyone who’s not an audit specialist. Fortunately, like most overwhelming things, preparation and financial education can put you at ease. Usually, an office or correspondence IRS audit will be resolved in one day. Generally, you’ll just have to pay or receive money to correct an error. In a correspondence audit, the IRS will ask you to mail them the financial information needed. An office audit is necessary when the IRS needs you to come in and answer questions. Again, these usually aren’t serious. The field audit is when the IRS comes to your office to verify that your business and expenses are legitimate. Even if everything’s in order, a government official poking around in your workplace is unnerving to say the least. The good news is, with healthy financial reporting and accounting habits, the audit procedures won't seem so scary. In fact, preparing for a financial statement audit can be a great opportunity to discover areas of improvement in your accounting and reporting systems. In the following section, we’ll discuss the accounting standards you should follow so you’re prepared for a financial audit.How To Prepare For A Financial Audit
If your books are organized, you’ll need to coordinate with your auditor and compile your documents. Also, you should do an extra internal review of your books, including a financial statement audit, well ahead of your IRS audit to identify any issues. How long your internal review will take depends on how organized your business’s financial records. In the following paragraphs, we’ll outline what should be included in your internal review before an audit. Keep in mind that this list isn’t exhaustive and it’s a good idea to talk to a professional before undergoing an audit.1. Align Reporting With Accounting
It’s not uncommon for a financial report to be inconsistent with accounting records. On a small scale, and in any other context but an audit, this generally isn't a big problem. However, it’s important to have everything as organized as possible for an audit. Generally, the more organized your books are, the easier it is for the auditor to do their job. This is good for you because it means your audit report will be over faster, so you can get back to work. Plus, the auditor won’t have to do as much digging around in your private records.2. Ensure Records Remain Organized
When you’re facing a financial audit, your single greatest asset is good organization. By having all your ducks in a row, you speed up the process significantly. That means less time wasted on the audit for you and an easier job for the auditor. Not to mention, if you’re more organized, you avoid forcing auditors to review more of your private information. After all, if they can’t find the documents they need, they’ll go wherever they must to find the information they need. Worse, if you don’t have the information the IRS needs, you leave it up to them to decide what to believe.