<p>What's the difference between audit & tax?</p>
<p>Basically Tax services in an accounting firm helps a company identify which taxes they have to pay and which taxes they do not have to pay. That’s how it is in a nutshell, but in reality it is much more complicated then that, especially if you are running a multinational corporation.</p>
<p>Audit services means that the accounting firm will verify a firm’s financial statements (P&L and Balance Sheet) and add their credibility to it for public information. Audit services means that the accounting firm will inspect the company for any cases of fraud (and report it if any exist), while also basically verifying that the financial statements provided by the company are true, if not they will create their own financial statements which will then be presented to the company (and if the company chooses, the public).</p>
<p>That’s my take on it.</p>
<p>Tax = minimizing client’s tax liability to the IRS</p>
<p>Audit = express an opinion on the client’s financial statements</p>
<p>Audit is neat, programmed, predictable, process, orderly, uses principles rather than rules for the most part. CPA’s opinion is final product.
Tax is chaos, making things up as you go along, rules based, searches for ways to avoid narrow rules of paying tax, distorts income and financial position. Final product tax return is subject to audit and approval of IRS.</p>
<p>Tax is two things, compliance and planning.</p>
<p>Compliance Example: You earn a salary this year, you make sure to pay taxes due next year. </p>
<p>Tax Planning: You turn your business into a corporation. You can pay yourself a reasonable salary, cash dividends, or distribute property to yourself. There are tax implications to each. Paying a salary gives the corporation a deduction(so no double taxation) but depending on your other income and how big the salary is, it might not be helpful if you are in the range where SS tax is still collected. Dividends are not deducted at the corporate level because they are not an expense the way salaries are, so this has problems too. The corporation is taxed and then you pay the dividend tax(still much lower than taxes on regular income at the individual level). Finally, by distributing property the corporation may have to recognize a gain and pay taxes on that. </p>
<p>Tax planning involves looking at all of these possibilities and coming up with the plan which minimizes tax exposure. Compliance is retrospective, making sure the tax liability is calculated correctly, all forms are filed and receipts kept in case the IRS comes auditing.</p>
<p>There is also tax research, which is much like legal research using the Tax Code & regulations. I find tax people more introspective vs auditors. (It is all relative - neither are typically the life of a party!). </p>
<p>There’s a joke that actuaries make accountants look like party animals!</p>
<p>I think tax research is part of the other two service areas. Nobody pays you to do tax research for the sake of it. You do it because there’s an existing or past unusual situation where a company needs to investigate how the tax code and legal precedents apply to their individual fact pattern(compliance) or you need to research ways to structure future transactions in a way which benefits the company. Research is going to be prospective and/or retrospective which puts it into either of those two baskets(assuming it’s not in the academic arena anyway).</p>