How IRS Audits Are Changing
Honestly, nothing strikes fear into the heart of a business owner like the term “audit”. It is a guarantee to make managers reach for the antacid.
…And it’s been like that for decades!
We are starting to see some new trends in this old nemesis of business. Here are a few examples to give you new nightmares:
Here’s a tactic guaranteed to scare you! Now, instead of having to face auditors in real life, your business is audited virtually from afar and the actual wrap up, traditionally done in the office, is done in the field. The required information is uploaded on a secure portal and the actual audit is handled remotely.
As you can imagine, one of the requirements for this to be executed successfully is clean books and well documented systems and if you don’t have those, then the audit has a good chance to raise more questions – and costs – than it sought to answer.
One new twist on this model is for third parties handling audits. These will use a call center type model with assigned staff to particular clients or tasks – say, for example, cash management – and from there, serve to document processes and procedures adherence. This is also a popular model for the next new type of audit…
The idea of continuous auditing grew out of bookkeeping and while it may not be “new”, the way in which it is deployed today certainly is. The concept is a sound one – giving a department or third party the ability to monitor transactions and make sure that all cash flow is properly accounted for and the balance sheet remains accurate throughout the period, not just after a monthly or quarterly reconciliation.
In this trend, the firm handling the audit can address any issues nearly instantaneously rather than weeks or even months after the fact and the real beauty of this is the fact that accuracy is virtually guaranteed and there is no “end of the period” crunch for time or worry.
At the same time, the company that uses these types of services often can recoup any mistakes faster since the individuals that are in charge can more easily remember an issue from last week versus trying to remember a fact or action from months ago.
One intangible benefit of the continuous auditing process is the fact that the audit team and the company are constantly working together, which helps to build the strength of the overall team and leads to a better understanding between team members, leading to smarter business decisions regarding expenses, cost cutting, and GAAP.
Lest it be said that the audit of the future will be performed by the same sociopath that we all assume auditors to be, the rise of technology in the field of accounting and bookkeeping has led the way for software to perform audit functions. By utilizing simple programming, certain actions can simply not be allowed in cash management and bookkeeping software, thus negating the ability to make the mistake in the first place.
At the same time, this programming, and thus, these analytics, can be used to project cashflow issues long before they materialize. For example, the ability to track customer payments can help to signal when a potential client may default on a payment in the future and allow your company to reach out and discuss solutions before they ever become problems.
No matter what business owners think of the word “audit” it is one that will always be in the business lexicon and while the term conjures up images of IRS agents and magnifying glasses, the truth of the day is that the ability to use audits in new – and better – ways is one that can make your own company stronger and give you valuable insight into where you are with respect to you own financials.