It is vital for all businesses to maintain up-to-date and accurate financial records. Not only is it important to avoid paying penalties or even prosecution but you may also become subject of a tax audit. Shareholders have the right to hire external tax auditors to assess the financial accounts of the business, as they are only aware of public financial statements that a company makes. This is not necessarily an accurate portrayal of the situation.
External tax auditors offer an unbiased opinion on a business’ finances, which they then pass on to the shareholders. A tax audit involves carrying out a number of tests on the figures that have been produced by the company. Tax auditors can check the figures by doing calculation based on the documentation and comparing these to those that have been recorded. Tax auditors also review the internal accounting controls to ensure that they are sufficient.
Internal tax auditors differ from external tax auditors in that they are hired by the company directors rather than by the shareholders. Carrying out an internal tax audit ensures that all financial accounts are in order and this goes on to reduce the amount of work that needs to be completed by external tax auditors. Internal tax auditors particularly focus on potential cases of fraud.