Auditing is part of accounting and ensures accounting transparency and accuracy for individuals and businesses. While the state obligations in Washington make it compulsory for companies to get their books audited, the Internal Revenue Service (IRS) audits the taxpayers’ financial information in WA to ensure compliance with tax laws.
While the basic knowledge of auditing might help you take correct measures, hiring a professional CPA in Seattle, WA, is the key to ensuring that your business complies with the state tax laws.
Accounting and auditing both serve distinct purposes.
Accounting and auditing go hand in hand, but they serve different purposes. Here’s what accounting aims for:
- Accounting broadly covers recording, classifying, and summarizing financial transactions.
- Accountants ensure that the financial data is organized and summarized by maintaining records per GAAP or IFRS standards.
- Accounting analyzes financial data to demonstrate financial performance and health.
- Cash-flow statements, balance sheets, income statements, etc., are the elements of accounting procedures.
- Accounting facilitates business owners’ decision-making by providing vital financial stats.
On the other hand, the purpose of auditing is as follows:
- Auditing is a systematic, independent examination of financial transactions, records, and processes.
- The primary objective of auditing is to ensure fairness and reliability in financial transactions and statements.
- An auditor ensures that the businesses comply with federal and state laws, regulations, standards, and principles.
- Auditing ensures that businesses have financial transparency and promotes their credibility.
Different types of auditing
There are three major types of audits.
External audits
- A third party, usually a Certified Public Accountant (CPA), performs an external audit.
- External audit aims at eliminating biased evaluation of a company’s financial stats.
- It involves the evaluation of financial data and internal control of the company.
- An external audit report allows stakeholders to make an informed decision.
- The external audit follows the US Generally Accepted Auditing Standards (GAAS) and rules made by the Public Company Accounting Oversight Board (PCAOB)
Internal audits
- Internal audits are carried out by the auditors placed by the company itself.
- An internal audit is a managerial tool employed to reconcile internal control and processes.
- Internal auditing allows organizations to ensure that they comply with laws and regulations and maintain precise financial data and reports.
Internal Revenue Service (IRS) audits.
- IRS audit intends to assess the accuracy of tax returns of an individual or business.
- Factors such as a discrepancy in a tax return, high net worth, and huge deductions may trigger an IRS audit.
- The objective of an IRS audit is to ensure that the individuals comply with federal and state tax laws and regulations.
- The IRS may impose penalties for inaccurate and incomplete tax records.
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