Auditing your accounts: what to expect and how to prepare

By Samantha Mur

Published: 22 October 2024

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

Don't panic, we'll explain what it's all about so that you can understand how the procedure works.

See all software Accounting

What is a tax audit? Definition and objectives

Auditing: definition

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

Place of the 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 checks that

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

Verification allows tax to be adjusted upwards or downwards where necessary. This is referred to as an adjustment or rebate respectively.

☝ What is an extended tax audit?

Extended tax auditing means continuing the procedure for examining a company with the personal tax situation of the company director or manager, at the same time or afterwards.

Which companies are affected?

All companies that are required to keep accounting documents and must be able to present them are affected by the accounting audit.

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

"(...) is to examine, on the spot, the accounts of a sole proprietorship, a company or a person governed by public law who is liable for corporation tax (...) or VAT (...)".

Bofip-impots.gouv.fr

Duration of the audit

In the case of small businesses, the accounting audit may not last longer than 3 months. This applies to companies whose turnover is below the simplified tax regime threshold, i.e. :

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

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

How does an accounts 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 accounts audit, generally 15 days before the date. The notice must specify :

which years will be audited
whether the company may 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,
making material observations.

4. Visit to company premises.

5. Summary meeting between the audit officer, the company representative and the company's counsel, if any. These discussions provide an opportunity for arguments to be put forward, and the proposed increases may be dropped.

At the end of the procedure

6. The auditor draws up a report and sends it to his or her superiors. The document contains the errors and anomalies identified and the proposed corrections notified to the company.

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

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

At the end of the audit

8. The company responds within 30 days of receiving the letter. In the case of an adjustment, the company may submit its 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. Possibility of referring the case to the departmental or national commission for review, if the company contests the proposed adjustment procedure.

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

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

What are the consequences of failing to submit documents?

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

A contradictory adjustment procedure may be applied.

In the case of a rejection of the accounts, i.e. when the accounts are considered to be inconclusive, an ex officio assessment procedure may be launched. The auditor will estimate the turnover himself.