Auditing is defined as the examination of financial statements. Auditing is done to see if there is a profit or a loss. Audit risk is increased when an auditor provides wrong interpretations or errors on the financial statements that were audited. The risk is that the auditor did not correctly interpret the facts that are correctly stated on the financial statement. Proper audit practices should be done to avoid a big audit risk. Audit control should also ensure that the interpreted data is true to what the financial statements show.
There are several things that can be done to reduce audit risk. Here are some tips that you can do to lessen audit risk for financial statements:
- Use auditing software. Most of the time, audit risk is a result of human error. It is advisable to use auditing software in order to reduce the audit risk. There are a lot of auditing software that you can use. All you have to do is to enter data and the calculations will be done for you. You can download free auditing software from freeware or shareware websites. Some of the computer programs that you can use for computer audit are TurboTax or MacInTax. Using these types of software is also ideal, especially if you have your own business or run a big company.
- Do not round-off numbers. Another thing that can increase audit risk is when you round-off numbers. Do not do this. The amount added or lessened when rounding-off can seem small at first, but when you do this for all the digits, you will face a larger audit risk. It is better to write the amounts exactly as you see them.
- Location. This is something you should consider only if you travel a lot. There is a bigger chance that the IRS will audit your records based on the area where you live. Some taxpayers are audited twice or thrice as much as other people because of the location of their residence. You can ask the IRS or visit the official website to see which locations have lower audit rates.
- Accurate tax return. Another thing you should consider is how your income tax return is prepared. The best thing to do to avoid a big audit risk is to have a report that reflects what the tax return report says. This is a crucial step, as the report can either lower or increase your audit risk.
These are the steps that you can take to reduce audit risk. These steps should be done in operational audits to reduce the internal risk. These steps may be simple, but they will contribute a lot when auditing occurs. The ideal step is to use auditing software. You can also research more on how to go about submitting tax return reports without having an audit risk. There are resources that you can read regarding these matters. It is also good to check the official website of the IRS to learn more about auditing.