Accounting audits: what to expect and how to prepare

By Samantha Mur

Published: October 22, 2024

Does the thought of an accounting audit make you break out in a cold sweat? Are you a company director or manager who has received a notice of an accounting audit and would like to know what to expect?

Don't panic, we'll explain what it's all about, so you can get the most out of this procedure.

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What is an accounting audit? Definition and objectives

Accounting verification: definition

In a nutshell, an accounting audit is an examination of all the accounting documents and supporting evidence relating to your company's activity, for the year(s) selected.

Place of the accounting audit:

It is carried out by the tax authorities directly on the company's premises.

Objectives

The aim of this procedure is to ensure that a company's actual accounting situation is consistent with the information declared, by comparing various elements. More specifically, it verifies :

whether full or simplified accounting records have been kept, in accordance with the company's obligations;
the truthfulness of entries, based on supporting documents, company data and other information,
reconciliation between tax returns and accounting data.

Verification enables us to adjust taxes upwards or downwards, if necessary. This is referred to as an adjustment or rebate respectively.

☝ What is an extended tax audit?

Extended accounting verification refers to the fact of continuing the examination procedure of a company with the personal tax situation of the manager or head of the company, at the same time or following it.

Which companies are concerned?

All companies required to keep accounting records and to be able to present them are concerned by the accounting audit.

According to the Bofip (Bulletin officiel des finances publiques) definition of an accounting audit, this procedure :

"(...) is to examine, on site, the accounting records of a sole proprietorship, a company or a public law entity liable to corporate income tax (...) or VAT (...)".

Bofip-impots.gouv.fr

Duration of an audit

For small businesses, an accounting audit may last no longer than 3 months. This applies to companies with sales below the simplified tax regime threshold, i.e. :

818,000 euros for buying/selling activities,
247,000 euros for services.

The procedure may be extended by up to 6 months if serious accounting irregularities are detected.

How does an accounting audit work? 12 stages

Prior to the audit

1. preparation of documents (accounting books, invoices, bank statements, contracts, etc.) prior to the audit: the person in charge of the procedure seeks to gather as much information as possible about the company.

2. Receipt of the notice of audit, generally 15 days before the date of the audit. The notice must specify :

which years will be audited,
the possibility for the company to be assisted by an advisor.

During the audit

3. Carrying out the accounting audit:

inspection of accounting documents, both in terms of form and content,
analysis of legal documents,
examination of accounting processes,
material findings.

4. Visit to company premises.

5. Summing-up meeting involving the auditing officer, the company representative and his or her counsel, if any. These discussions provide an opportunity for arguments to be put forward, and any proposed increases may be dropped.

At the end of the procedure

6. The auditor draws up a report, which is forwarded to his superiors. The document includes the errors and anomalies identified, as well as the proposed corrections notified to the company.

7. Conclusion and receipt by the company of the final notification:

either a notice of no rectification, when no rectification procedure is envisaged,
or a proposed reassessment based on the auditor's observations.

At the end of the audit

8. Company response within 30 days of receipt of letter. In the case of an adjustment, the company may make observations and contest the proposed adjustments. If no response is received, acceptance is tacit.

9. Second reasoned response from the tax authorities: on the basis of the company's observations, the tax authorities decide whether to accept or reject them; they then send a new letter proposing an adjustment.

10. If the company contests the proposed reassessment procedure, the case may be referred to the departmental or national commission for review.

11. Collection of additional tax: despite any objections, the company is obliged to pay the sums requested.

12. Recourse to the administrative court, if the dispute remains unresolved between the administration and the company.

What are the consequences of failure to submit documents?

If the company is unable to present the documents required for the audit procedure, the auditor draws up a report on the failure to present the accounts.

A contradictory adjustment procedure may then be applied.

In the event of an accounting rejection, i.e. when the accounts are deemed to be inconclusive, an ex officio assessment procedure may be launched. The auditor is responsible for estimating sales himself.