There are three types of audits:

  1. A correspondence audit is done by mail. Never by email or by phone! The IRS will request specific documents that are being questioned in the tax return.
  2. A field audit is when the IRS requests to come to your office, home or tax preparer’s office to perform the audit.
  3. An office audit is when you are required to go to an IRS office to meet an auditor. You will usually bring documents that they have requested.

An audit can be defined as a formal review of financial accounts of an organization, business or an individual. An internal audit is carried out by members of similar business or organization and an external audit may be done by a government or regulatory agency.

There are six steps in the process of an audit which should be followed for an audit to be successful, and they include;


Asking for Documents

After the organization has been informed of the audit that is to take place, the auditor asks for documents stated on a checklist like receipts among others.

Preparing a plan for audit

Here the auditor cross-checks the information contained in the document and makes a plan of how the audit will be carried out. A risk workshop may be carried out to pinpoint possible issues. An audit plan is then created.

Scheduling an Open Meeting

Key administrative staff and senior management are called on to an open meeting in which the audit scope is laid down by the auditor.

Carrying out Fieldwork

The information amassed from the open meeting is taken by the auditor and he utilizes it in finalizing the plan for audit. Field work is then carried out by reaching out to members of staff and reviewing processes and procedures. Compliance with procedures and policies are tested by the auditor.

Drafting a Report

A report is prepared by the auditor which details the result of the audit. The report would be made up of posting problems, mathematical issues, payments which were authorized but were not paid and other inconsistencies. A commentary which describes the findings is then written by the auditor and ways suggested to solve the problems.

Setting Up a Closing Meeting

The auditor requires a response from management that shows if it disagrees or agrees with the issues contained in the report, a description of the plan of the management to fix the issue and a date for completion. At the close of meeting, all relevant parties talk about the report and responses to management. If there are any further issues, they are sorted out at this period.