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The cost of having your business books and records audited is deductible.

There are three levels of report that a CPA can do for your books and records:

Compilation
Review
Audit

A compilation means that the financial statements are reported in accordance with a basis of accounting. In other words, assets are reported as assets, liabilities are reported as liabilities and so forth.

A review is actually my favorite form of financial statement analysis. It means that the CPA has performed various statistical analysis to see if the numbers are in line with past performance for the company and in general in line with stats you’d expect for your industry.

An audit involves sampling and testing the processes, systems and numbers that are part of your entire financial cycle. It’s the most expensive of the three levels and is easily the most misunderstood. An audit, for example, is not designed to disclose fraud or possible embezzlement. You’re often better off with a review to spot that.

Regardless of the type of CPA service you have – audit, review or compilation – you have a tax deduction for your business.

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