If your business suddenly faces an audit, then you have the right to be worried. Most of the time, audits are performed internally. This is usually the yearly audit to ensure that everything is fine and all the records are honest. But external audits can come from many sources. The most common one is the IRS tax audit. Small and medium businesses sometimes face these if they have suspicious information on tax returns like claiming business losses for multiple years yet still operating. Other audits can come from regulatory agencies or investors who suspect something about your operations.
Audits can be a stressful experience and can cause trouble for your company, even if you are completely innocent. If you want to ensure that it goes as smoothly as possible, here are some tips to help you out.
Check The Audit Letter
Audits do not appear like a surprise. Whether it is the IRS or some other body, they need to notify you of it happening. The audit letter will also outline everything that you need to prepare and a timeline for the potential audit. Some letters arrive months ahead of time, but it is not a good idea to ignore or set aside the letter. The moment you receive it, you should be taking steps to start preparing. Sometimes, the preparation will take months, so starting early is a good move.
Organize Your Documentation
The key part of any audit is the review of your various documents. While this is usually your account books, the law states that an audit can request any relevant documentation. This means everything from memos to e-mails. They can even send a legal hold on your Slack conversations. This can be a bit awkward when it comes to trying to collect them all. Any missing documentation can mean trouble, so you need to work with your team and IT experts to work out ways to preserve or find the relevant data. If your company has a solid data backup policy, then this should be no problem. If you don’t, consider implementing one as soon as possible.
Consult With Experts
It is always a good idea to work with experts when it comes to audits. If it is a tax audit, then you’ll need a tax lawyer to help you clear up some of your rights. For example, a lot of people don’t know if an audit is not going well. They can call for a recess so that they can consult with a tax professional. Knowing this ahead of time can help you out of a tough spot. When consulting, have an idea of what you want to ask about so that your consultant will be able to present you with clear information. You can also ask them for some general tips.
Be Honest With The Auditors To A Point
One thing that you should always be is honest with the auditors. Whether it is the IRS or a certification team, honesty is always the best policy. But only answer the questions they ask. Volunteering information can go into other issues and may complicate things. Your goal with any audit is to simplify it as much as possible. For that to happen, you have to answer the questions they ask. Anything beyond that is just asking for trouble. Additionally, make no excuses or give opinions. Work with the facts that you have and nothing more.
Keep In Contact
Audits take time. Depending on the size of your company, it may take several months. While they may be out of sight, never let the auditors out of your mind. If possible, ask for updates on the audit. If they are in contact with your tax people, then they should inform you of any progress being made. Keeping in contact also applies to you. Don’t go on vacation or something similar while an audit is happening. You need to be there to answer any questions or provide assistance when necessary.
Use The Information From The Audit
While an audit can be a big headache, it can also reveal a lot of things about your business. Pay attention to what goes wrong and what goes right during the audit. This will allow you to make the necessary changes in the future, so it is much easier.
While troubling, an audit should be fine as long as you did nothing wrong. You need to follow procedures and be honest with everything. It would also help if you had systems in place already to make audits easier. Think of implementing these now before you actually need them.