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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
References in periodicals archive ?
The authors' knowledge of the organization audited, as well as oral evidence based on interviews and inquiries, was critical to evaluating the competence and trustworthiness of the staff that allowed the informal controls to function so effectively.
The total balance of all the participant account balances should equal the audited fund balance after the allocation of investment earnings and operating expenses.
The auditors were professional and experienced in the multiple states for which they audited.
Such items might include the company's organization chart, information showing the percent of ownership of all subsidiaries, annual reports, audited financial statements, applicable accounting policy manuals, logistics for the audit team's review of corporate minutes, copies of corporate tax returns to include any amendments or carry backs, copies of partnership tax returns and/or K-1's, G/L, and A/P data files used in preparing the tax return, and other unique items to the company or industry.
Auditors on a detection mission stick to identifying control lapses and recommending improvement to the audited unit's management.
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The goal of the program is to rebuild the confidence of investors in our capital markets and reestablish audited financial statements as a clear picture window into corporate America.
In contrast, SAS 58, Reports on Audited Financial Statements, does not require a reference to the client's internal controls in the audit report itself.
Electronic audits can also increase the percentage of the taxpayer population audited, maximize the efficiencies related to statistical sampling, streamline the detailed review of all records for an audit period and instantly access records in a computer readable format.
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If problems developed in areas that had recently been audited without the auditor identifying the potential problem, the auditors were judged to be less effective.
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