WHY THE INCREASE IN AUDIT COSTS?

Time. It all comes down to the amount of time a firm and its employees must spend gathering support and documentation. An increase in audit hours leads to an increase in overall audit costs due to the per hour rate that most firms institute. Why the increased support and documentation? Two words: new standards.

These new accounting and auditing standards are often difficult to interpret and can be even harder to apply. Some of the more wide-known changes include:

• Greater responsibility related to the detection of material fraud
• Gaining a better understanding of the design and operation of a client’s internal controls
• Obtaining specialized knowledge regarding fair value measurements
• Determining the best answer when presented with conflicting guidance in professional literature
What can firms (who require audits) do to assist the auditors and decrease audit costs? The following list provides a few basic rules to follow to make an audit as smooth as butter (butter? Maybe crunchy peanut butter):

• Ask your auditors for a list outlining what documents they will need. Some likely suspects:
o Articles of incorporation
o Debt agreements
o Significant leases
o Minutes of the Board of Directors
o IRS filings
• Designate sufficient personnel to the audit. For example:
o CFO
o Controller
o Accounts receivable manager
o Accounts payable manager
o Internal auditor
• Hold a meeting to introduce the audit firm to any personnel they may need to have contact with.
• Develop a joint audit plan that identifies deadlines and the materials needed at those deadlines.

Instituting these simple steps can greatly reduce confusion, excessive communications, and thus audit hours. For further questions regarding the audit process and how to simplify it, contact your local Certified Public Accounting firm.

Doom’s Day

Today, September 15, 2010, is the final deadline to file corporate tax returns if an extension was requested. If you haven’t gotten the work in to your local CPA or begun work on the return yourself, you’re looking to perhaps pay some penalties and interest.

If you have a balance due on a late tax return, the Internal Revenue Service will calculate further penalties and interest. Here’s what to look out for:

Failure to File Penalty

If you do not file your return by the due date, with or without an extension, you may be stuck with a failure to file penalty. The penalty is 5% of the tax not paid by the due date for each month or part of a month that the return is late. If your return is more than sixty days late, the penalty will be the lesser of $100 or 100% of the balance due. If you can show reasonable cause as to why the return was filed late, you will not have to pay.

Failure to Pay Penalty

This penalty is pretty self explanatory. Until the full balance is paid on the return, there will be a 0.05% penalty for each month the balance is not paid in full. There is no limit on the failure to pay penalty.

Interest

Generally speaking, the IRS will waive some penalties but will be VERY hesitant to waive any interest fees. Interest rates are set quarterly and are calculated based on how much tax you owe. The underpayment tax is currently 4% per year.

Prepare yourself for tax season and its deadlines. If you feel like you cannot make the deadlines, file an extension. Remember it is ALWAYS beneficial to file sooner than later.