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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.


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)


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
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All security policies are in accordance with SSAE 16 and FISMA recommendations and the operation is SSAE 16 and SOC type 1 and 2 compliant.
Obtaining our SSAE 16 compliance shows that detailed policies and procedures for our operations and business are not only in place but tested thoroughly by an independent auditing firm," says Ken Cox, Vice President of Operations at Hostirian.
SSAE 16 is designated by the US Securities and Exchange Commission (SEC) as an acceptable method for management to obtain assertions about service organization internal controls without conducting separate assessments.
The SSAE 16 audit and certification process validates EarthLink's technology, business and physical security processes and ensures they meet or exceed standards established by the nationally recognized Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA).
So if--and only if--you are outsourcing to a service provider whose work entails financial reporting that posts to your general ledger, then you should obtain from that service provider an SAS 70 or an SSAE 16 audit.
With SSAE 16, AICPA has developed a reporting standard intended to better align with the globally accepted reporting standard on service organization controls, ISAE 3402.
In both the Escrow and Title Industries, SSAE 16 SOC 1 and SOC 2 Type I and Type II audits are becoming the industry standard designed to provide an overview of Service Organization's description of internal controls and processes relevant to their customers.
SSAE 16 allows for a written assertion of testing procedure effectiveness by the management as well.
The SSAE 16 Type II examination was done in line with the attestation standards created by the American Institute of Certified Public Accountants, which confirmed that NOVAtime operates in line with SSAE 16 standards for controls associated with the development, hosting services, and support of its NOVAtime 4000 and NOVAtime 5000 application suites.
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The SSAE 16 is substantially equivalent to International Standard on Assurance Engagements 3402 (ISAE 3402), "Assurance Reports on Controls at a Service Organization.