Our readers in the Sacramento area may be interested in a recent survey regarding tax deficiencies. (For those who don't know, the IRS will send a notice of deficiency if the amount reported by a taxpayer is less than the amount the IRS determines is owed.) The Public Company Accounting Oversight Board analyzed the results of the survey, and the analysis was published on June 6 by Acuitas, Inc.
The survey found that fair value measurement and impairment deficiencies accounted for more than 50 percent of the audits with deficiencies that were cited in the PCAOB's 2010 inspection reports. Though not every deficiency noted by the IRS results in an audit, the recently published numbers represent a tripling of the number of deficiencies since 2009, and the percentage of audits with deficiencies doubled in that same period.
The uncertainty engendered by the economic recession is more than likely the major cause of so many current audits with deficiencies. There is a direct relation between audits with deficiencies and the problems of fair value measurement and asset impairment. Sometimes a company's management miscalculates assets and impairments, and that kind of mistake is understandable. However, it is of course desirable to avoid an audit that is based on mistaken fair value measurement or a tax deficiency.
If business owners feel that there may have been an error in their own valuations, then it is advisable to make sure that a CPA promptly reviews the information. If further help is necessary, it is a good idea to seek advice from legal professionals who can help in appealing the results of an audit.
Source: Accounting Today, "Audit Firm Deficiencies Have More than Doubled," Michael Cohn, June 6, 2012