I keep hearing this term from my accountant friend and have absolutely no idea what it means. I tried googling it but that just left me even more confused than I was.
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With any kind of submission the people who receive it basically just look at the cover and go, “okay this guy owes this much tax, we trust him.” And there’s auditing for all sorts of things (efficiencies, safety, harassment, etc.). And with a regular report they just look at it and say “okay we trust that this is accurate.”
What an audit is, is looking in depth to make sure that everything adds up. They get copies of all invoices and receipts and do an independent calculation. If the two amounts add up everything is fine. If the two amounts don’t add up, there’s problems. Typically when an audit goes bad for the audited it’s because they tried to claim an expense that they aren’t allowed.
For example my sister-in-law was told by a friend of hers that she could claim her personal vehicle as a business expense if she leased it instead of buying it. It turns out, that’s not exactly true. The vehicle has to be used for business purposes and if it’s mixed use you need to break down the differences between work travel and non-work travel into the overall leasing cost, maintenance and use of the vehicle…. which she didn’t do (although I did tell her about it she just chose to ignore me).
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