Receiving a notification from the Australian Taxation Office (ATO) requesting a tax audit for your business can be a daunting experience.
In Australia, the ATO usually audits businesses every three years or if their system triggers a warning that there may be misconduct. Audits are becoming more familiar with the ATO’s increased activity and advanced data-matching software.
The key to navigating this process smoothly and alleviating stress is proper preparation.
Use the list below as a comprehensive guide to preparing for an ATO audit and ensure you get all the crucial details.
The audit procedures stand whether an external or internal auditor conducts the audit.
Understanding the Purpose of an Audit
Before delving into the preparation process, it’s essential to clearly understand why the audit is being conducted and its scope.
An audit examines an organisation’s financial data and bank statements. The results are presented as an audit report by someone independent of that organisation.
The primary purpose of a financial audit is to ensure that a company’s financial statements are accurate and complete.
The auditor examines financial records and statements to ensure they are free from material misstatements and errors.
Additionally, the audit evaluates the company’s internal control system to ensure it is effective in preventing and detecting fraud and errors.
10 Steps to Prepare for an Audit
1. Meet with the Auditor Early
One critical initial step is establishing early communication with the auditor. During this meeting, outline any vital changes in your business, significant or unusual transactions, and matters that might impact the audit.
This includes issues related to internal controls, fraud, and legal or insurance matters. Addressing these matters early allows relevant documentation to be maintained and reviewed promptly.
Henceforth, maintain open and transparent communication with your auditor throughout the process. Designate a point of contact within your organisation who is responsible for coordinating with the auditors and communicating the timeline, expectations, and deliverables.
2. Establish a Timetable
Set a clear timetable with critical deadlines and dates, such as information delivery and board or committee meetings. Progressive deadlines should be established to focus everyone’s efforts, ensuring a smooth audit process.
3. Request a Requirements List
The auditor may provide a detailed list of requirements to facilitate the audit process. This list includes documents and information needed to audit your financial statements. If you don’t receive one, do not hesitate to request it. Ensure that you have everything prepared and ready before the audit commences.
4. Staff Availability
Avoid scheduling key staff members’ time off during and immediately after the audit. While auditing your financial statements, auditors may request additional information, including supporting documents and explanations. Scheduling brief status meetings and maintaining a joint ‘outstanding list’ can help manage progress and ensure everyone is on the same page during the audit.
5. Keep Accurate Records and Utilise Accounting Software
Keeping precise documentation and utilising accounting software is crucial to ensure your financial records are accurate and up-to-date. This not only helps in meeting compliance requirements but also simplifies the audit process.
6. Double-Check Entries
Please review your entries to ensure their accuracy and compliance with regulations. Identifying and correcting errors early can save time and prevent potential issues during the audit.
7. Keep Organised Records Dating Back Five Years
The ATO may request records dating back five years. Therefore, keeping organised records, including financial statements, receipts, and other relevant documentation, is essential. Grouping the business activities by financial years allows for more accurate information breakdowns.
8. Review Internal Controls
Auditors often focus on evaluating the effectiveness of internal controls within an organisation. Take the time to review and assess your internal control systems, financial policies, procedures, and segregation of duties. Address any areas that may require improvement or additional documentation proactively.
9. Reconcile Accounts
Perform a thorough reconciliation of your financial accounts, ensuring you have supporting documentation available to substantiate reconciliations. This is especially important in areas involving estimates and judgment.
10. Address Previous Audit Findings
Addressing any findings and recommendations is crucial if your organisation has undergone previous audits. Take the necessary steps to rectify identified issues and properly implement suggested improvements. Demonstrating your commitment to continuous improvement can positively impact the current audit process.
Make Your Audit As Seamless As Possible
Preparing for an ATO audit doesn’t have to be a daunting task. Proper planning can become integral to your operational processes, minimising additional resource demands.
By understanding the purpose and scope of the audit, meeting with auditors early, and ensuring your records and internal controls are in order, you can confidently navigate the audit process and alleviate stress.
Proper preparation is the key to ensuring the integrity of financial information and avoiding potential legal and financial penalties.
AFP Accounting can provide expert guidance if you want professional assistance preparing for an audit.
Contact one of our qualified members at email@example.com or call (02) 7804 1849.