Tax Audit vs Internal Audit

Internal audits will evaluate the firms internal controls which includes its accounting process and corporate governance. They will ensure the compliance with the laws and regulations and will also make sure accurate and timely financial reporting and data collection, as well as aiding to maintain the operational efficiency by identifying the issues and correcting the lapses before they could be discovered in an external audit.

A tax audit is an examination of your tax return by the IRS to verify that your income and deductions are accurate. A tax audit is when the IRS decides to examine your tax return a little more closely and verify that your income and deductions are accurate.

Tax audit is verification of various aspects of the client with respect to provisions of the Income Tax Act. This includes checking various details and disclosures in form 3CD and issuing report in form 3CA or 3CB. Main focus of tax audit is making adjustments, if any and if necessary, to income as per computation of taxable income of the client according to disclosures in form 3CD and 3CA/ 3CB and arrive at the tax liability.

Internal audit on the other hand, is examination of various financial and operational areas selected for scrutiny. Though this involves checking books of account and supportings, main focus is on reviewing processes and controls built-in in respective functional areas. Verification of controls also include internal financial controls to prepare financial statements and compliance with regulatory requirements.

Thus, tax audit and internal audit are very different.