Stephen Merritt, CPA, PC | Certified Public Accountants | (757) 420-5778
233 Business Park Drive, Suite 104, Virginia Beach, VA 23462
Your monthly news & updates
- What Is An Audit?
- End of Year Tax Reminders for Business Owners
- Five Ways to Welcome in a New Year: 2023
- December Days
- Office Hours
What Is An Audit?
The word “audit” can be thrown around a lot in casual conversation. When an accounting professional uses it, it means something very specific. We’ll discuss this and other uses of the term “audit” in this article.
A financial audit is an official service designed to inspect the accounting records, technology, and processes of an organization. An audit can only be conducted by a licensed CPA that is independent of the organization.
Independence is a special term as well, meaning the CPA who audits the organization must have no relationship with the organization or its owners and employees. For example, if the organization’s owner is the sister of the auditor, that won’t work!
To conduct an audit, the CPA performs an audit program, which is a set of tasks that review the company transactions, balances, and accounting processes. The audit program is custom-designed to the company based on the risks perceived by the audit team, the type of organization being audited and other factors. Once the audit has been completed, the auditor will issue a formal report stating the findings of the audit. The report typically includes a letter, financial statements, and footnotes.
The auditor’s report can be utilized by the company’s management as well as third parties, such as lenders and stockholders.
While there are mandatory audit requirements for large public companies, government institutions, schools, and some larger nonprofit organizations, small businesses are not typically audited because of the expense. That’s when additional assurance services come in handy.
Other Assurance Services
An audit falls under assurance services in accounting, and it’s the most stringent of all. Other types of assurance services include:
Compilations. In this engagement, the CPA performs basic checks on your financial statements and puts them together with a cover letter. It basically tells a third party that you have a CPA, but it provides the least amount of assurance service.
Reviews. In a review, there are a few more checks and tests that a CPA will perform before issuing financial statements. This service provides more assurance than a compilation, but less than an audit.
Agreed-upon procedures. An engagement with agreed-upon procedures is a very specific engagement where one aspect of the business is reviewed in accordance with a specific goal.
For small businesses who are asked for documents from your accountant by a bank or lender, you can often provide one of these lower-level assurance reports and it will not only suffice, but save your money.
Auditing a Class
Auditing a class has nothing to do with accounting! It simply means you’re sitting in on a college course, but not getting any kind of credit or grade.
The Dreaded IRS Audit
The term audit can also be used informally to define an inspection that is narrower in scope, such as an IRS audit or a state agency audit. There is no assurance provided in this type of audit. The purpose of this audit is to produce whatever records you are asked for in order to verify the numbers you sent to the agency.
An audit may be somewhat of a stressful and unpleasant, but necessary, experience. Having your accountant support you along the way can be reassuring (pun intended).
End of Year Tax Reminders for Business Owners
Performing these tasks at year-end will help your tax professional prepare your return accurately, plus it will make your tax professional very happy when you have these answers at the ready!
- Write down the odometer reading on the vehicles you use for business. It is important to know what percent you are using the vehicle for business and what percent you are using for personal. You should have a mileage log, but even if you just write down your odometer once a year, you’ll know how many total miles you drove for the year.
- If you carry inventory, you are required to do a count once a year showing the value.
- If you have payroll, verify if your EDD employment rate has changed for the upcoming year. You should have received a letter with the percentage in early December.
- Collect any W-9s from vendors. Verify if you paid anyone over $600 that will require a 1099. You will also need to send out a 1096. Visit the IRS website to order forms: https://www.irs.gov/businesses/online-ordering-for-information-returns-and-employer-returns
- Back up data from the computer. Double check the backups are copying correctly.
- Update service account passwords and who has access to them. For security reasons, it is important to periodically update passwords and review/reassess which individuals have access to them.
- Copy thermal receipts. Many receipts that you get from office supply stores, gas, etc., are on thermal paper. The image will fade over time. Make a copy of the receipt because if you are audited, the IRS will want to see the details, not the credit card statement. Better yet, scan all of your receipts into a document management system and toss the paper.
- Verify when corporate minutes will be due for the coming year and mark the calendar.
- Review your business plan and make any necessary changes. What do you project your gross revenue to be for the upcoming year? How will that compare with the current year? What will you do to increase your profits?
- If you use QuickBooks, set the closing date and password on QuickBooks file.
Getting these necessary clerical tasks out of the way will make it easier for everyone.
Five Ways to Welcome in a New Year: 2023
A new year is a perfect time for a fresh start for you and your business. Here are five ways to welcome 2023 and make it your best year ever.
Decide on a theme for 2023.
Setting a theme for the year can help you remember what you want to focus on. Some examples of themes might be:
- Growth and improvements to your business. You can be specific, such as making your theme the year of mastering technology, the year of profitability where you focus on cutting costs or increasing sales, or the year of diversity where you focus on creating a diverse team.
- Downsizing, cleansing or simplifying. Perhaps your business has grown so quickly that you need to sit back, de-clutter, re-design, or simply clean your office.
- Expansion. Is it time to launch a new service?
- Giving back. If everything is humming along, it could be time to start giving back to your profession or community.
From here, you can create a plan of tasks and timelines that are aligned with the theme you’ve chosen.
Go on a retreat.
If you need to regroup and rejuvenate from a stressful holiday season, then a retreat can do the trick. A retreat is a time to set goals for your business and make a plan. You could discover that you are on track or that you need a course correction in your business.
A retreat can be made alone or with certain team members. Typically, the events of a retreat include a combination of planning and brainstorming sessions, education, team-building, and social activities.
If a retreat sounds like too much work, then a quick vacation might be in order, just so you can enter the new year with a relaxed mind.
Learn from 2022.
If 2022 was a bumpy time for your business, it might be a good idea to perform a detailed review. This will help you learn what went wrong and explore why. You can then brainstorm ideas on how to avoid the pitfalls of 2022 as you move into 2023. You can make it as informal as you want, or structured as an after-action review.
Select a word for 2023
If setting a theme is too complicated, how about selecting one simple word for 2023? Here are some ideas:
- Abundance (think big, go after large contracts and big projects)
- Powerful relationships (OK, that’s two words!)
- Forgiveness (especially good if you are in customer service or have difficult clients)
I’m sure you can think of one that will be perfect for you. Once you do, write the word on several sticky notes and paste it everywhere you work and maybe even at home. Your postings will serve as a reminder of what your intention is throughout 2023.
Make a profit plan (AKA budget)
Making a profit plan for the new year will help you hone in on the profit amounts that you want to achieve. Understanding how much volume you need to reach and what you can spend will avoid surprises at year-end. At mid-year, it’s a good idea to see if you are on track for the rest of the year.
Whether you do one or all of the ideas above, we hope you have an awesome 2023 and that it’s your best year ever.
Here are some Days to Remember in December!
December 7th- National Pearl Harbor Remembrance Day
Each year in the United States, National Pearl Harbor Remembrance Day honors all those who lost their lives on December 7, 1941 during Japan’s attack on Pearl Harbor. More than 3,500 Americans lost their lives or were wounded on that solemn day.
December 12th – National Poinsettia Day
The Poinsettia is native to Mexico and is called Flor de la Noche Buena (Flower of the Holy Night). This flowers connection to the holiday season comes from an old Mexican Legend.
December 13th – National Cocoa Day
The Mayans are credited with creating the first hot chocolate beverage around 2,000 years ago. Enjoy the day by making your favorite cup of hot cocoa and sitting down to some holiday movies!
December 17th – National Wreaths Across America
The culmination of a yearlong mission to Remember the fallen, Honor those who serve, and Teach the next generation the value of freedom. Volunteers come together to lay wreaths on the headstones of those who have served our country.
December 18th – 26th – Chanukah (Hanukkah)
Festival of Lights
The Festival of Lights lasts for eight days and eight nights. It is also known as the festival of rededication, meant to honor the victory of the Maccabee soldiers over the Syrian Greek army. In their victory the Maccabees reclaimed the Holy Temple in Jerusalem. They had only enough oil to ignite the temple light for one night, and yet the light burned for eight days.
December 21st – January 1st – Yule
Yule is a celebration of the Winter Solstice and is one of the oldest winter celebrations in the world. It simultaneously celebrates the shortest day of the year, midwinter, the return of the Sun and a festival of rebirth. Yule is both a time of reflection and celebration.
December 23rd – Festivus
“A Festivus for the rest of us”
Festivus commemorates a holiday episode of the television comedy Seinfeld. Frank Costanza invented the holiday in response to the commercialism of Christmas.
December 24th – 25th – Christmas Eve & Christmas Day
Christmas Eve kicks off a series of holiday traditions around the world. Some being attending religious services, putting out milk and cookies for Santa, or watching Christmas Movies. On Christmas Day, one of the most popular customs is gift-giving.
December 26th – January 1st – Kwanzaa
Kwanzaa is a weeklong celebration held in the United States that honors African heritage in African-American culture. It culminates in gift giving and a big feast. Kwanzaa has 7 core principles:
Umoja: Unity, Kujichagulia: Self-Determination,Ujima: Collective Work & Responsibility, Ujamaa: Cooperative Economics, Nia: Purpose, Kuumba: Creativity, and Imani: Faith
Office Hours: May 2, 2022 – December 30, 2022
Tax Season Hours Begin January 2, 2023
Monday – Thursday
8 AM to 5 PM
Coronavirus Disease (COVID-19)
Stephen Merritt, CPA, P.C. understands the challenge the impact COVID-19 has on our community.
Fully-Vaccinated individuals are not required to wear a mask while in our office.
Unvaccinated or not Fully-Vaccinated individuals must wear masks and follow COVID-19 protocol, such as social distancing, while in our office to stop the spread of COVID-19.
Tax documents may be mailed, FAXed, emailed, uploaded to client portal, or dropped off.
Final Returns can be picked up or mailed out.
As always, please call, we are happy to assist.
Stay safe and healthy!