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A systematic examination of financial or accounting records by a specialized inspector, called an auditor, to verify their accuracy and truthfulness. A hearing during which financial data are investigated for purposes of authentication.

The Internal Revenue Service (IRS) conducts two types of audits, called examination of taxpayer returns, and they are typically conducted using one of two types of procedures. The most common auditing procedure involves correspondence between the service and the taxpayer or interviews with the taxpayer in a local IRS office. A less common method involves field audits whereby IRS officials conduct the audit at the taxpayer's home or place of business. Treas. Reg. § 601.105(b)(1). The service determines which audit procedure should be followed in a particular case. During an audit, an IRS official may question the taxpayer about a particular transaction or transactions that appear on the taxpayer's return or may conduct a thorough investigation of the taxpayer's entire tax return.

Although many people fear audits by the IRS, the percentage of returns examined by the IRS is relatively low. For example, of 108,034,700 returns filed by taxpayers in 1997, the IRS examined 1,662,641, or about 1.5 percent of the total number of returns. Despite this low number, several stories surfaced in the 1980s and 1990s regarding abuses by IRS officials, many of which occurred during the audit process. Congress responded by enacting two "Taxpayer Bill of Rights," first in 1989 and again in 1996. The second act, the Taxpayer Bill of Rights 2, Pub. L. No. 104-168, 110 Stat. 1452, established and delegated authority to the Office of Taxpayer Advocate. This office is responsible for assisting taxpayers in resolving problems with the IRS, identifying areas where taxpayers have had problems with the service, and identifying potential legislative and regulatory changes that could mitigate problems between the IRS and taxpayers.

Further readings

Baran, Daniel J. et al. 1997. IRS Audit Protection and Survival Guide. New York: Wiley.


Internal Revenue Service.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.


n. an examination by a trained accountant of the financial records of a business or governmental entity, including noting improper or careless practices, recommendations for improvements, and a balancing of the books. An audit performed by employees is called "internal audit," and one done by an independent (outside) accountant is an "independent audit." Even an independent audit may be limited in that the financial information is given to the auditor without an examination of all supporting documents. Auditors will note that the audit was based on such information and will refuse to sign the audit as a guarantee of the accuracy of the information provided. (See: auditor)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.
References in periodicals archive ?
Management accountants need to adopt an integrated internal control and governance approach to ensure that their organizations' business functions are aligned with technology frameworks, leverage the strengths of business control frameworks like COSO's and IT control frameworks, and coordinate them with their business objectives.
Rather than simply viewing risk management as an extension of COSO's Internal Controls Framework (the basis for the 2004 version) with a primary focus on the environment within an organization, the updated version explores enterprise risk management by evaluating a particular strategy, considering the possibility that strategy and business objectives may be misaligned, and looking at the risk to implementing the strategy and business objectives.
(Note: This section quotes directly from the COSO International Control--Integrated Framework.)
COSO Enterprise Risk Management (ERM) Integrated Framework--COSO's ERM Framework, published in 2004, provides guidance to help businesses and other entities develop and apply their enterprise risk management activities.
The new COSO 2013 framework makes a specific reference to fraud and the things that need to be considered when performing an evaluation of the system of internal controls regarding fraud.
With all this in mind, the Coso published a revised framework in May 2013 to address the significant changes to the business environment and associated risks.
Coso Geothermal Power operates three geothermal facilities in Inyo County, California, with total capacity of 302 MW.
In light of the SEC's Rule 33-9089, COSO's four practices provide helpful guidelines to demonstrate that boards are fulfilling this fiduciary duty.
COSO's model has been criticized for failing to prevent the frauds and restatements seen over the last decade.
The Coso project, which includes 169 Federal mining claims and 800 state-owned acres, was previously developed by Western Nuclear, Pioneer Resources, Federal Resources, and Union Pacific Mining/Rocky Mountain Energy.