Tips When Being Audited
As a business owner, you may be subject to either a financial statement audit or an IRS tax audit. Regardless of which audit you encounter, these tips will help you and your business excel through the audit process.
1. Understand your financial statement and tax positions
Your financials and tax returns demonstrate your financial health to people outside your business. Whether you prepare your own financials and tax returns or outsource to a certified public accountant (CPA) to perform, you should understand them. When you know the details of your financial and tax positions, you will be better prepared to speak about your business to your auditors and to others who ask you about the financial strength of your business. To help know the details of your financial statement and tax positions, talk about them with the people who helped you prepare them. Ask questions of experts, and perform your own research.
2.Retain supporting documentation to support your financials and tax returns
Once you understand your financial statement and tax positions, organize and retain supporting documentation. One idea is to create electronic folders for your documentation and tie-out your records to your financials and tax returns. If you use a CPA to prepare your financials and returns, ensure that your CPA maintains this documentation, too. Documentation will give you peace of mind and will help speed up the audit process.
3. Use an expert
If you are asked for an audit, you may want to ask a CPA to help coordinate and communicate with the auditors. CPAs know the process and will be comfortable representing you with the auditors. Using an expert may alleviate your stress about an audit and may free-up some of your time.
4. Maintain a positive attitude toward the audit
If you have a negative attitude, an auditor may believe you are hiding something, and the audit process will seem longer and more arduous than it needs to be. When you maintain a positive attitude, it will help you sustain better communication with your auditor and everyone else involved with the audit.
5. Learn from the audit experience
After you complete the audit, you will know what it takes to get through an audit, and you can better prepare for future ones. Create your own audit checklist to prepare for the supporting items asked by the auditors. While an audit covers a historical period, you can learn from the auditors how to improve your financials, returns, and records for the future. If you look at the value-adding knowledge you can apply to your business, the audit will seem less of a business burden and more of a business-improvement activity.