Impacts Of The Irs Audit

2562 WordsSep 7, 201411 Pages
As a Partner of the Practicing Firm, I would like the CEO and CFO of the corporation to be aware of the impacts of the IRS audit. As a part of the IRS Examination, they have observed that the Inventory write downs were not accurate and were only included in the tax returns so that a lower tax is being computed. These were not included in the Income Statement. As a result, IRS audit team can consult their front line manager and the Fraud Technical Advisor and if so determined, a Civil Fraud Penalty equal to 75% of the tax owed that is attributable to the fraud will be levied on the organization. Also the interest would be recovered on the penalty amount. I would also like to recommend some internal controls that can be implemented and followed by CEO and CFO that could prevent the Financial Statement Fraud. They would include establishing and promoting an effective whistleblower program, segregating of Accounting function from the transaction performing staff, creation of right culture, non tolerance of frauds at any level, matching cash flows with revenues, analysis of Swings in Assets and Liabilities, and continuing education and training program. These internal controls become very critical as it is the joint responsibility of CEO and CFO regarding what all is presented in the Financial Statements. CEO and CFO sign the financials before Board of Directors and Auditors as they owe the ultimate responsibility of all what is being presented and disclosed in the Financial
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