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3. Government audits

Government audits are performed to ensure that financial statements have been prepared accurately to not misrepresent the amount of taxable income of a company.
Within the U.S., the Internal Revenue Services (IRS) performs audits that verify the accuracy of a taxpayer’s tax returns and transactions. The IRS’s Canadian counterpart is known as the Canada Revenue Agency (CRA).
Audit selections are made to ensure that companies are not misrepresenting their taxable income. Misstating taxable income, whether intentional or not, is considered tax fraud. The IRS and CRA now use statistical formulas and machine learning to find taxpayers at high risk of committing tax fraud.
Performing a government audit may result in a conclusion that there is:

1. 
   No change in the tax return
   
2. 
   A change that is accepted by the taxpayer
   
3. 
   A change that is not accepted by the taxpayer
   

If a taxpayer ends up not accepting a change, the issue will go through a legal process of mediation or appeal.
6 essential features of auditing

• 
  Systematic process
  
• 
  Three-party relationship
  
• 
  Subject matter
  
• 
  Evidence
  
• 
  Established criteria
  
• 
  Opinion
  

The essential features of auditing are explained below;

1. Systematic Process

Auditing is a systematic and scientific process that follows a sequence of activities, which are logical, structured, and organized.

2. Three-party Relationship

The audit process involves three parties: shareholders, managers, and auditors.

3. Subject Matter

Auditors give assurance on a specific subject matter. However, the subject matter may differ considerably, such as – data, systems or processes, and behavior.

4. Evidence

The auditing process requires collecting the evidence, that is, financial and non-financial data, and examining thereof.