A formal examination of a company’s financial records to ensure accuracy, transparency, and compliance with tax or reporting standards.
What is an Audit?
An audit is a detailed review of a business’s financial records, transactions, and reports, conducted to verify that the information is accurate and compliant with applicable laws and regulations. Audits can be internal (conducted by the company’s own team), external (conducted by independent accountants or firms), or governmental (such as an IRS audit). While not all small businesses are subject to regular audits, larger companies or those seeking investment may be required to conduct annual audits.
In a U.S. tax context, an IRS audit is triggered when there are discrepancies, red flags, or random selection in a tax return. The IRS may request documentation for income, deductions, and credits claimed. Being audited doesn’t always mean wrongdoing, but it does require timely and accurate responses. Proper bookkeeping, accurate filings, and clear records are the best defense. Even for smaller businesses, regular internal reviews can help maintain clean records and reduce the risk of non-compliance or financial mismanagement.
