Audit Defense

Modern methods and technologies have really made the business not only a national aspect but truly an international one. A business left unchecked may grow indefinitely and thus lead to unfair advantage over its peers. Also, the investors and shareholders constantly want a correct scenario of the business and are not satisfied by what the managers present to them. Thus, a method called an audit is undertaken, to determine and review a company’s actual standings.
An audit is an evaluation of an organization, system, process, project or product. In accounting, an audit is an independent assessment of the fairness by which a company's financial statements are presented by its management. An audit is performed to validate and cross-check the companies accounts, possessions, valuables and other services that it may be using or providing. It may also be employed to authenticate the pricing system of the company and authenticate the software and business goods used by the company as well. Thus, audits are of various types and may be done to anything.
Although audits are done by neutral auditors and a transparent system may have no theoretical risk, but an audit may not be a 100% correct one. In fact, the auditors are themselves humans and may commit mistakes or a mistake by the company may be seen as a fraud. There comes the need of a sound audit defense. An audit defense can be described as the steps and practices involved so as not to get a bad audit report. These may be seen, by some people, as another fraud to escape the law but it is not. In fact, an audit defense is a mechanism to prevent one.
Normally, a fair enough audit defense can be erected simply by good business practices and an internal audit. An internal audit would mean an audit by oneself (usually in case of a small business) or by a hired professional who can guide the company. However, an audit defense needs legal and expert aid in two cases. Firstly, a transfer pricing audit and secondly, a software audit.
In the modern scenario of globalization and market liquidity, the government is concerned that a manufacturer or service provider should not charge the consumer more than he deserves to. Therefore, transfer prices (prices of goods, including the profit of the company and all middlemen) are reviewed and audited stringently. The government aims at equal wealth distribution by this method. Thus, the prices of the goods and services must be set appropriately so that an audit does not result in negative reports and at the same time, the profits are not reduced much. A popular method to do so is Advance Pricing Agreement (APA).
An APA is an agreement made by the company to sell the goods at a fixed price over a period of time. This price is called “arm’s length price”. By this, the company is saved from further audit during the time-period of the APA. This creates a good audit defense which is legal as well as acceptable to all the parties involved. Often, the determination of arm’s length price involves complex audit and legal procedure. Thus the company often goes for the help of audit defense companies. These companies appoint legal experts as well as good auditors and often charge in the form of a share in the profits.
The second case we discuss is the software audit. An international agency by the name of Business Software Alliance (BSA) audits software used by the companies. It is a private organization which includes experts from all the major software company like Microsoft, Adobe and Symantec etc. It also includes legal attorneys who together work to check software piracy and misuse of customer rights. They often target business houses as often the companies do not care about the expiry of the software or its misuse. Thus, a good software audit defense would include timely review of the use of the software and the legal remedies if the company is convicted in a court of law. Also, the experts who provide a software audit defense advise the company about good software practices as well as alternate software that might be helpful to them.
Thus, we can say that a company providing a good audit defense must

• Provide the most persuasive case of the client to the auditors
• Take advantage of all the legal and administrative procedure and remedies
• Avoid costly settlements and penalties
• Guide the company on good business practices

Here we might like to note a point that a sound audit defense does not covers frauds by covering mal-practices but uncovers it by timely review and internal audit. Also, all the mal-practices can be removed from the system simply by taking proper financial and legal help. Now the choice of legal help or self audit is utterly personal to the company.