Does the idea of a tax audit cause you to lose sleep? Are you worried that you will be unprepared for a tax audit when it comes? Does your staff show signs of anxiety in anticipation for the auditors to walk through your company’s doors?
If any of the above scenarios sound familiar, take heart. The four tips below will help you successfully prepare for a tax audit.
- Be Ready.
Ask your auditor for a list of items they will need during the audit, with deadlines for each item. Discuss any questions you have with the auditor before the fieldwork. If you will not be ready before the agreed-upon dates, let your auditor know right away.Know beforehand that you will be required to provide some information on the spot. This may include requests for specific expense reports, journal entry support, or program reports. Prepare for these surprise questions by collecting the information you may need throughout the year. - Be realistic.
Be realistic with your expectations of the audit. Your contract with the auditing firm should set your expectations. It should discuss what the audit will accomplish and your responsibilities.Take note that there is a clear line between accounting and auditing services. Consider hiring a different firm if you need help performing accounting tasks that you are not comfortable performing. However, if you are capable of owning the process, your audit firm can assist you with certain analysis and adjustment information outside of the audit. - Minimize Your Risks Year-Round.
Review and revise your accounting and procedures manual. If you do not have an accounting and procedures manual, develop one. Self-assess internal weaknesses and determine the necessary internal controls to diminish those weaknesses. Revisit your organization’s policies and procedures periodically and determine whether they are being followed.Discuss any changes in operations with your auditor during the year and update your policies and procedures accordingly. - Be Prepared to Deal with Any Control Deficiencies.
Be prepared for your auditor to apply risk standards during your audit. Once your auditor has reviewed the risk and internal control information you’ve assembled, he or she could determine there is a “significant deficiency” or, more serious, “material weakness”.Prepare a written response for any matter identified in the auditor’s SAS 115 letter. Include whether you have taken or intend to take any action in response to the finding.
For more information about preparing for a tax audit, read our blog “SecretsSharedforIRSTaxAudits”.