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Streamlining corporate audits
The purpose of an audit is to effectively and efficiently determine the correct amount of tax based on an analysis of relevant tax statutes, regulations, and case law as applied to the taxpayer's facts. Experience shows the best results are achieved through cooperation, effective communications, setting goals, and sticking to the goals throughout the audit process.
We conduct audits on corporate entities in accordance with Audit Regulation 19032, to ensure we work together cooperatively during the audit, and complete that audit as soon as possible. Key tools for accomplishing this include the opening conference, audit plan, information document requests, and Audit Issue Presentation Sheets.
The opening conference establishes the necessary groundwork for conducting an effective, efficient audit. It opens lines of communication, and helps build a partnership between the auditor and you, the corporation's representative. During the opening conference you and the auditor will become familiar with the audit participants, agree on a general audit plan, discuss audit processes and procedures, agree upon expected timeframes, and discuss other relevant items as necessary.
The audit plan establishes open lines of communication, and promotes understanding of commitments made, and agreements reached. The audit plan is a tool providing a road map of how the audit began, how the audit is progressing, where the audit is going. It also identifies key potential audit issues. It helps you and the auditor establish a partnership relationship, and work together to resolve problems as early as possible in the audit process. The audit plan helps ensure an effective, efficient audit that is less burdensome, less costly, and less intrusive.
We encourage you to participate in developing the audit plan. By involving you in the plan's development:
- Both parties will more efficiently manage the fact gathering and analysis process.
- You will be able to anticipate deadlines and provide alternative solutions for resolving issues, such as using alternative documents, and using agreed sampling methods where records are voluminous.
- It should ease any apprehension you may have about what to expect, and foster communication and cooperation in the audit process.
- You will understand that issues included in the audit plan are based on the materiality of the potential adjustment, and balanced with the statutory requirement to determine the correct amount of tax. Materiality of an issue is a "facts and circumstances" test, and is considered throughout the audit.
- You will understand the audit plan is a guide for the examination. It is subject to revision as progress indicates the need for more, less or different work than originally planned.
Information Document Request
The Information Document Request (IDR) is an important tool we use to obtain necessary information. All requests for information are documented on an IDR. We maintain a master IDR Log to track all issued IDRs, and to provide a clear focus for the status of IDRs. We can share copies of the Master IDR Log with you so all parties have a common understanding of the expectations. During the opening conference, the auditor will:
- Discuss the general response timeframes and follow-up process for IDRs. It is important to establish an understanding that a timely completion of the audit is based on meeting the time frames. We will inform you that it is our practice to issue an IDR, one follow-up IDR, and, if necessary, a formal demand for the information. The formal demand will indicate we may apply the failure to furnish information penalty if a timely response is not provided.
- Discuss the general format of the IDR and explain the use of the single question IDR as opposed to single issue IDR. If appropriate, the auditor will ask you if you would like to review the draft IDRs before they are issued.
- Establish who will receive the IDRs, and whom we should contact if we need to obtain additional records or information.
Audit Issue Presentation Sheet
The purpose of the AIPS is to communicate the specific audit issue, the facts that have been developed, the relevant law, and the audit recommendation on the issue. Issuing each AIPS provides the opportunity to conclude and resolve issues on an ongoing basis. The AIPS is an important tool that keeps you fully informed about the audit and the FTB's position on each issue. During the opening conference, the auditor will explain:
- What an Audit Issue Presentation sheet contains.
- That we will issue an AIPS as soon as audit issues are completed. Auditors will not wait until the end of the audit to provide this critical information flow.
- That all adjustments will be explained through use of the AIPS process.
- We request that you respond to the factual write-up as presented in the AIPS. We understand you may disagree with the application or conclusion of the law but at a minimum, we should strive to obtain agreement with the factual understanding.
- The appropriate timeframes for responses.