Whether you’re a small business owner, contractor, or freelance worker in Australia, it’s essential that you stay on top of your tax obligations. Have you wondered if you’re really ready to have your business audited by the Australian Tax Office? It can be especially easy to lose track of financial statements when you’re the one busy running your business. After all – being audit-ready is important to ensure compliance but also to make sure that you don’t unnecessarily overpay taxes or miss out on relevant deductions and credits when tax time rolls around.
That’s why we’re here today; this blog post will offer insight into how often businesses are audited by the Australian Taxation Office (ATO), so you can better understand your rights and responsibilities as an entity conducting business in Australia. Read on for more information about audits, their frequency and how to prepare if one should take place!
What is a Business Audit?
There are a few types of audits that could take place when it comes time to review your company’s financial operations. A business audit is something that many business owners will experience; it is an important process that allows you to review your financial statements and conduct an internal audit or review. When an officially sanctioned review of a business’s financial records and practices is required, an external audit will, most commonly, be conducted by the Australian Taxation Office (ATO).
An external audit or an ATO audit aims to ensure that your financial reporting and paying its taxes for employees and to the government correctly. An ATO external audits involve a detailed examination and analysis of all tax-related documents.
When and Why Does the Australian Tax Office Audit Businesses?
The ATO has the power to audit businesses randomly at any time. However, they tend to focus their audit efforts on businesses that have not been compliant with their taxation obligations. Audits are also triggered if your business is found to have made mistakes in its tax returns or financial statements and if the information provided by other sources suggests that you may have underpaid your taxes or reported income correctly.
How Often Can a Business Be Audited by the Tax Office?
The ATO may have up to six years to conduct or request external audits of your business operations. Ensure that your business is compliant with all taxation obligations and reduce the risk of ATO audits. It’s important to stay on top of your legal and financial statements by keeping accurate financial reports and through conducting regular financial audits within your business.
Generally speaking, larger businesses are more likely to be audited than smaller ones. However, even small businesses can be subject to audits if operating with 50 or more employees by the end of the financial year.
Why Is a Business Audit So Important?
Regular auditing ensures the accuracy of your company’s financial statements and that all the financial records are compliant with generally accepted accounting principles. Performing frequent internal audits and external audits helps maintain the credibility of your finances.
A lot of employers hear the words “internal audit” recommended to them by their accountants and think their business is in trouble. This couldn’t be further from the case. A more likely reason your accountant or business advisor has recommended you perform an internal audit on your business one of the easiest ways to ensure your business in good financial standing is by performing a routine internal audit. Internal audits don’t just merely analyse your basic profit and loss records; they go beyond and inspect your business activities, processes, management and operations to guarantee everything is operating optimally.
You can also employ external audits conducted once every financial year by a reputable accounting firm in order to ensure the credibility and trustworthiness of your financial statements with an external audit. From legally mandated requirements to selling or buying a business or even acquiring new investors, these audits can give extra assurance that a business is operating legitimately. Regular audits are one of the easiest accounting processes you can add to both small businesses and large companies alike to meet tax reporting requirements more effectively.
How to Request an Audit on a Business
If you think that your business has been incorrectly taxed on more than one tax return, or if the ATO has information suggesting that errors have been made in previous returns, you can request the ATO audit a business. To do this, contact the ATO and explain why you believe a review of your tax filing is necessary.
However, the audit process can be a big hassle, especially if you do not have the resources to regularly check and submit financial records to the ATO, that’s where hiring a reputable accounting firm to help with internal audits and financial records can save the day! Utilising a bespoke agency can allow you to have a second pair of eyes on your accounting records, financial audit and compliance come tax time.
Shoebox Books is an accounting agency that not only loves small businesses but helps make the audit process easier for business owners, get in touch with the team today!