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Audit Scope Example

Audit Scope Example

Ely is an auditor for the IRS. His work, some of the most technical for any forensic accountant, involves looking deeply into a company to find errors which may lead to prosecution. By doing this, Ely is preventing the company from any financial foul-ups that could lead to fraudulent information being shared. He is now tasked with finding the reason for recent tax payments.

The company Ely is auditing is a major food processing plant. This food company has had a history in the past of financial record “mistakes,” which explains the reason for the IRS being quick to investigate a discrepancy. This company, paying much less than IRS estimated taxes, may face a penalty. Thus the company sends Ely to see the reason for this discrepancy.

As Ely is working he takes on massive amounts of documents. He will have to sift through countless financial statements, as well as procedural documents in order to draw a conclusion on a large auditing matter. For this project he will have a very deep audit scope: he must find the reason through almost any means necessary. Because federal taxes are taken very seriously in the United States, Ely is given the authority by the IRS to request any documents or evidence that could make his decision making process run more smoothly in a legal way.

Ely Finds Something

As he is working, one of Ely’s assistants finds something; an account which should have more money than it does. With large company’s this is not uncommon because large sums of money must be moved and transferred at a moment’s notice in order to retain balance in the company’s ledgers. However, Ely is not completely convinced that unintentional error is the cause for the discrepancy. Ely scales deeper to find the cause: a company employee has been stealing funds. Though the company itself is proven to be fully compliant their records have been altered by this corrupt worker. Ely is able to help the company recover the funds and see that the employee pays for his crime. Each party is pleased with the audit, except for the employee who caused the problem.

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audit scope example

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Audit Scope

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Audit Scope

Audit Scope Definition

Audit scope, defined as the amount of time and documents which are involved in an audit, is an important factor in all auditing. The audit scope, ultimately, establishes how deeply an audit is performed. It can range from simple to complete, including all company documentsAudit scope limitations can result from the different purposes listed below.

Audit Scope Meaning

Audit scope means the depth of an audit performed. Audits are performed for several purposes: regular “checkups” of company records, to check for internal errors, for the purpose of finding fraud inside a company, for the purpose of finding fraud in another company, or even for the purpose of finding tax income and other offenses against IRS law. Due to this fact, audit scope and objectives have a different meaning depending on the person performing the audit as well as the reason behind the audit.

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If the audit is being performed for regular internal processing, then the audit will generally only have a scope which includes the latest period which has passed. This occurs because the company has probably already audited the previous period.

If An Audit Reveals Fraud

If the audit is being performed to find fraud, however, it will generally have a deeper audit scope. It may include records from years or even decades ago. This is due to the fact that, at the very least, a violation of company policy occurred. Dedicated auditors, either company employees or hired auditors, spend their entire career in this. They often spend much more time and look far deeper in this process.

IRS auditors may even look at documents which were created during the birth of a company. This is because they are trying to find errors which result in increased income for the government as well as civil or criminal charges. A company will want to keep pristine records to assure that the auditor does not look deeper than the audit scope documents which a company can support.

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