How to avoid audit agony

StuartBusiness Audit

For most small business owners, the thought of getting an audit notification from the ATO is horrifying. But if you’re well prepared, patient and co-operative audits don’t have to be as painful as they sound.

The ATO orders audits based on suspicion of incorrect or fraudulent tax returns. Audits can involve varying degrees of scrutiny, from a simple phone call or letter requesting further information, while others require a visit from the ATO.

New technology. New level of detail.

Each year, around two million business tax returns are lodged with the ATO, either directly or via a registered accountant. The bulk of these returns are quickly assessed, while around 350,000 returns are red flagged.

From this year, that number is set to rise. By leveraging advanced software and analytics, the ATO can crosscheck every business and individual tax return against bank account data and other transaction databases that show an online paper trail of business conducted. The ATO will be able to do this in real time and anything that doesn’t conform to ATO guidelines will raise flags and the chances of an audit.

Avoiding audit agony: how to survive an ATO audit

Start gathering your data

If you’re not organised or can’t produce the required documentation, then the audit process will become difficult.

Without consistently reconciling information, errors are likely to compound over time and the source of the errors becomes difficult to pinpoint.

Review your accounting software; reconcile what is outstanding and then work out how to fill in the gaps. Banks, suppliers, major customers are a good start.

Admit your mistakes

In your information gathering stage, you may uncover mistakes. The ATO understand mistakes do happen. We’re only human after all. Be honest about errors from the beginning and it may help reduce penalties.

Consult with the professionals

Your accountant will help you locate what you need and will show you how to best organise your files ready for audit.

Audits are familiar territory for accountants. Not only are they good at handling them they are also removed from the emotion and stress of the audit. It’s best to let the professionals handle it on your behalf.

Safeguard against future audits

An audit can leave you with a large bill from the ATO AND your advisor. Taking out audit insurance eases that pain. 542 Partners have partnered with Audit Shield to negate the financial impact of being audited.

Our Audit Shield Service provides for the payment of professional fees incurred as a result of your being selected for an audit, review or investigation by the ATO or other government body. Our Audit Shield Service provides a fixed, cost effective solution to guard against these unbudgeted costs giving you peace of mind at the time you need it most.

Final thought

An audit can be a good learning experience for business owners. Your accountant can help you not only prepare for an audit, but also utilise the information obtained during the process to help strengthen and grow your business in future.

As the ATO’s data-matching capabilities become more sophisticated, accountants have an opportunity to be a trusted adviser to navigate the shifting tax landscape.

 

In danger of being audited or recently received an audit notification? We can help. Let’s talk.

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