2. WTF is an audit exactly? All I know is I’m terrified of one and don’t want one.
What “audit” really means (not the door-knocking nightmare version)
When people think of an audit, they picture an IRS agent showing up unannounced, ready to drag someone to jail over missing receipts.
That anxiety comes from not knowing what an audit actually is. An audit is not a raid or an accusation.
Both the IRS and Investopedia have similar definitions, describing an audit as a review or examination of financial records to ensure the information reported is correct.
At its core, an audit is a verification process.
Most people don’t realize there are two different types of audits.
The two types of audits that get blended together
Business/Accounting audits (for larger companies with investors)
IRS audits (the tax-return checks that trigger most of the fear)
Both types are forms of verification, but their purpose, process, and severity are different.
What each type of audit is
1. Business/Accounting Audits
Relevant for large companies, not typical small businesses
Investopedia describes these audits as comprehensive examinations of financial statements by qualified professionals.
The goal is to:
confirm accuracy
ensure compliance
check internal controls
prevent fraud
give investors confidence
These audits are:
routine
expected
designed for public companies, nonprofits, or businesses with investors
This type of audit provides assurance that financial statements fairly represent the company’s true position.
Most freelancers, online business owners, and service providers won’t experience this type of audit unless they grow to a size where investors or lenders require it.
2. IRS Audits
The one people fear and the one that gets most misunderstood
“An IRS audit is a review or examination of your accounts and financial information to ensure the tax return was filed correctly.”
It’s not a raid. It’s not someone barging in unexpectedly.
How IRS audits actually work (based on IRS publications):
You are notified by mail.
Audits are done by mail or in-person interview.
Most audits are correspondence audits, meaning the IRS asks for documentation by mail about a specific line item (like a deduction).
something statistically “sticks out,”
something doesn’t match another report, or
it was randomly selected as part of a sampling program (IRS: selection doesn’t imply wrongdoing.)
The IRS typically goes back three years, or up to six if there’s a substantial issue.
Audits conclude in one of three ways:
No change (you proved everything)
Agreed change
Disagreed change (with rights to appeal)
Nothing in the IRS definitions involves criminal accusations unless intentional fraud is found, and that is not what audits are designed to look for.
They’re designed to check accuracy, not hunt for crimes.
The Takeaway
A business audit is a structured, professional review meant to give investors confidence in a company’s financial statements.
An IRS audit is a accuracy check on a tax return, normally done by mail, and triggered by statistical patterns or mismatches, not suspicion.
In both cases, an audit is:
a verification
a request for clarity
a process grounded in documentation
far less dramatic than the door-knocking image people imagine
When bookkeeping is reasonably organized and receipts are accessible, audits become paperwork, not panic.
