Does E-filing Your Taxes Increase Your Financial Audit Risk?

We see things differently and the Internal Revenue Service perceives businesses with a suspicious look. So many writers are writing books aimed at educating business owners on how to build phony home business despite having a tax shelter.

The IRS are stepping up plans to encourage online tax return preparation by making paper filling history so as to make it easy for business owners to manage their businesses well. 

What is Tax Audit?

Tax audit is an examination carried out by a third-party to check a company’s reporting activities and financial records. An audit may be carried out for compliance, disclosure, taxation, legal or several other purposes. Full representation and accuracy of financial activities and claims are checked by the examiner.

Triggers for Tax Audit

Claims for large charitable deductions, omission of reported income, big deductions for home-based business, deductions in round number, math error on returns, income tax return failure are some of the actions that can trigger audit action. It is important that you review your e-filed documents thoroughly before submitting it electronically. You must also monitor closely the alert made available by the majority of online tax preparation services, put in place to detect your mistakes.

Other concerns

At the initial roll-out of e-file, some of the tax preparers express suspicion that online tax preparation may lead to the exposure of taxpayer to the audit verification process which is not applicable to paper files. The math verifying features present in most online tax preparation software help accountants by cross checking the returns before they would be submitted to IRS. This software helps in the protection of the files from the mathematical error that could raise audit concern.

How e-filing increases audit risk

Some Audit professional are of the opinion that online tax preparation will make businesses more susceptible to auditing while others do not see a correlation between online tax preparation and auditing.

It has been postulated by some people that online tax preparation gives a faster route to a tax audit compared to a paper as it is believed that paper may sit longer on the shelf waiting for attention. There is a certain risk inherent in the use of the internet. Despite the convenience of online tax preparation, the potential security risk are still on the ground. 

The file on the computer could be easily hacked so you have to secure your computer against theft of information. You should also ensure that any third party involved in your filling should also guarantee the security of your information.

Things to know about Internal Audit Procedure

Why Internal Audit?

If you are wondering about internal audit procedure, the first thing you have to know is that internal auditing is for the purpose of improving the effectiveness of business transaction in the organization and your report is to the management. 

Therefore, all you will do is within the organization and unlike external audit, your calculations is based on all categories of risk and not financial risk alone.

Knowledge and neutrality is required

An internal auditor is expected to have wide knowledge of transactions and events in the organization. At the same time, auditors are expected to be sincere in their judgment even in case of strategic issues.

The strategic issues are involved because the auditor here evaluates the risks in the organization even if the auditor is not gotten outside the organization. This seems pertinent because you have to be sincere and tactical. Always, choose the top rated CPA firm which specialize in internal audit services.

The steps for Internal Audit Procedure

The internal audit procedure is organized and sensitive. Therefore, certain steps are required in other to come to a good resolution. The following paragraphs will highlight the steps.

• Have a schedule: In other to help each of the processes to cooperate, the auditor should have a schedule so that each process will know what to them and at the particular time needed. This is because cooperation is needed at both ends. This schedule should be confirmed.

• Review previous audits: You cannot build something on nothing and at the same time, the history of a thing contributes to the existence of that thing. Therefore, it is smart and helpful to take a look at previous audits and the recommendations from it.

• Reviews & Activities: The next step is what is considered as fieldwork phase: Here, all the necessary reviews are carried out. It is not only about checking the financial circumstances and activities. It is also necessary that certain officials are engaged in informative conversation. It is at this stage that the risks are known and the important issues are addressed.

• Accounting & Reports: When you are done with all necessary findings, all your results should be accounted for and reported to the necessary aspect of the organization, most especially the top management.

By the time the above is list is completed, you have a good work done and all is left is for the follow up and addressing of necessary recommendations being followed.

Additionally, good time frame is very important because the process of audit can either be the reason why something is put on hold or why some things won’t go worse.

Conclusively, internal audit procedure is all about cooperation, coordination, reviews, and reports and follows ups within the organization. The knowledge about the little information on financial auditing is always the help that is significantly needed.