audit

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Audit

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.

Cross-references

Internal Revenue Service.

audit

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)

audit

verb bring into question, certify, check, check on, conduct an inquiry, examine, examine financial accounts, exxmine the accounts officially, go through the books, hold an innuiry, inspect, inspect accounts officially, investigate, monitor, probe, pursue an inquiry, rationes dispungere, reexamine, review, scrutinize, search, study, subject to examination
Associated concepts: allowance of claim, audit of account, audited claims, auditor, auditor's report, disallowance of claim, fraudulent audit
See also: analysis, analyze, bill, canvass, check, computation, examination, examine, indagation, invoice, monitor, scrutinize, study, test
References in periodicals archive ?
So an SAS 70 is far from the ideal tool, and shared assessments are about as close as one can get.
Reliance on the SAS 70 standard became even more prevalent following the 2002 enactment of the Sarbanes-Oxley Act, which required public companies to evaluate and certify their internal controls that are relevant to financial reporting, whether those controls are in-house or are maintained by an outsourced service organization.
SAS 70 is an auditing standard performed by a third-party accounting firm and conducted in compliance with the standards set by the American Institute of Certified Public Accountants for examining areas such as: organisational structure, governance and administration; access to facilities; logical access to systems; network services; and operational processes and environmental safeguards.
ERISA fiduciaries may rely on a Type I SAS 70 report just to gain an understanding of the plan's control environment.
Because a Type I SAS 70 audit report does not include independent testing of controls at the service organization, the Type II report is generally more useful in supporting management assertions of effective controls at service organizations.
However, Sarbanes-Oxley and the events that preceded it are beginning to close the gap between the intended and actual use of the SAS 70 report.
Plan auditors will increasingly request plan sponsors to obtain SAS 70 from their plan recordkeepers.
After being SAS 70 compliant, we are delighted to now become SSAE 16 compliant, so soon after the standard was adopted," says LorneSchwartz, CEO of MEI.
In this 2-hour live webcast, a panel of expert speakers will review the fundamentals and provide updates for SAS 70 transformation.
SSAE 16 is replacing the long-standing SAS 70 in June of this year, and will become the de-facto standard for reporting on service organizations," remarked Octavio Morales, TierPoint's CEO.
A SAS 70 examination signifies that SynTel has had its control objectives and activities examined by an independent accounting and auditing firm.