solved For this week’s discussion, choose 1 of the following topics

For this week’s discussion, choose 1 of the following topics and post your initial response in the Discussion Board. Do an internet search and identify 2 circumstances that an individual’s return has a greater chance of being audited. Discuss these circumstances and how to avoid them.An auditor proposes an adjustment to your client’s return. What are the procedural alternatives available to your client beyond simply agreeing to pay the proposed adjustment?Review the Ethics and Independence Rules Concerning Independence, Tax Services, and Contingent Fees on the PCAOB website. What types of tax services can be provided by an outside auditing firm to an audit client? What types cannot? How is the audit committee involved? Do the discussion and response the posted below. Posted 1 Two circumstances that an individual’s return has a greater chance of being audited are: Erroneous data entry Unusual/Unrealistic deductions Erroneous data occurs when individuals are carelessly inputting their information on their return and/or not waiting until they have received all of their documents (TurboTax, 2021). The latter part happened to me this year. I totally forgot about my 1098-T form which resulted in me filing my taxes without it; I had to amend my return. This can be avoided by carefully going back over the return before it is filed. I would suggest triple checking the return and if one is able to have someone review the return as well. Also, a good practice is to wait until you receive all documentation before filing (lesson learned for me). Unusual/unrealistic itemized deductions are tailored towards individuals and small business owners (TurboTax, 2021). For small business owners, their business expenses must be both ordinary and necessary. For individuals, daily commuting to your regular job is not deemed as a deduction (TurboTax, 2021). This can be avoided by looking on the IRS website to see what qualifies as deductions. Hiring a CPA or tax specialist to discuss tax situation and review deductions before filing return. The CPA or tax specialist will be able to guide the taxpayer on deductions that best fit their situation, if any are applicable. Posted 2The first circumstance that will increase an individual’s chance of audit is failure to report dividend income and or distributions from an individual retirement account (Iacurci, 2020). There has been an increase in third parties reporting income paid out to individuals to the IRS along with the taxpayer annual return. The IRS uses computers to compare what has been reported on the taxpayers 1040 return vs the information sent to them from financial institutions and other sources of information. Also, when an omission is found by the IRS, interest and the accuracy penalty of 20% of the underpayment of tax is normally added and collected. The best way to avoid this circumstance is to make sure you are reporting all your income on your tax return. The second circumstance that will increase an individual’s chance of an IRS audit is if you take deductions that are not in line with your income. The way to avoid this in an audit is to make sure that your deductions are documented, and you can provide proof of the deduction in case of an audit. The IRS will compare your deductions from year to year as well in order to determine if an audit is due on your tax return(s) as well (Fishman, 2020). As the IRS’s budget continues to be decreased by Congress each year and the audit rate continues to decrease due to staffing limitation, the IRS has increased the sophistication of the software they use to identify issues with tax filings. For example, in 2019 closed over 364,000 cases under its Automated Substitute for Return program which resulted in over six billion in additional tax income (Fishman, 2020). This program uses data the IRS receives from various sources and then compares its filings database to verify a return was filed. If no return is filed, then an assessment is sent out to the individual. References Fishman, S. (2020, July 16). Manage my Business: Microsoft Coporation. Retrieved from Microsoft Web Site: https://www.microsoft.com/en-us/microsoft-365/busi… Iacurci, G. (2020, 01 08). Personal Finance by CNBC. Retrieved from CNBC: https://www.cnbc.com/2020/01/08/attention-taxpayer… TurboTax Tax Experts. (2021, May 4). Top Five Ways to Avoid a Tax Audit. Copyright 1997–2021 Intuit, Inc. All Rights Reserved. https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/top-five-ways-to-avoid-a-tax-audit/L2dhSjRS9 less Posted 3 Hello Professor and Class, As found in Rule 3522, “Tax Transactions,” a registered public accounting firm is not independent of its client, if during any portion of the audit or engagement, the accounting firm (or member of the accounting firm) provides non-audit tax services which market, plan, or advocate in favor of either 1) confidential transactions, or 2) aggressive tax position transactions which encourage tax avoidance (unless these are more likely than not to be allowed under the tax laws) (PCAOB, Section 3, 2003-2021). These services cannot be provided by the outside auditing firm, and should be avoided. A full list of ethical rulings on other relationships which might compromise auditor independence, integrity, or objectivity is also listed on the site (PCAOB, ET Section 191, 2003-2021). Rule 3523 specifies that the auditor can also not perform tax services for people in Financial Reporting Oversight Roles, unless the person’s role is derived from serving as a member of the board of directors (or similar oversight body), the person in the role is an unrelated affiliate whose financial statements are either not material, or are prepared by a different auditor, or the person was not previously in the role, except for a promotion, hiring, or other change in employment, and the tax services were provided previously, and completed no more than 180 days after the hiring or promotion (PCAOB, Section 3, 2003-2021). Under Rule 3524, the role of the audit committee is to pre-approve certain tax services which may be provided by the auditor, which would not compromise the independence, integrity, or objectivity of the auditor (PCAOB, Section 3, 2003-2021). The public accounting firm would be required to describe, in writing to the audit committee, the scope of services, the fee structure, as well as any amendments to the engagement letter, between the firm and the audit client, as well as disclosing any referral fee/agreement/fee-sharing arrangement between any person rendering services other than the audit client and the public accounting firm (PCAOB, Section 3, 2003-2021). The public accounting firm must also discuss with the audit committee the potential impact the services provided might have on independence, in addition to documenting the substance of the discussion with the audit committee (PCAOB, Section 3, 2003-2021). As listed in Rule 3501, “Definitions of Terms Employed in Section 3, Part 5 of the Rules,” subsection (a)(v), the audit committee is a committee or equivalent body, established by the board of directors of an organization, or (if no such committee exists), the board of directors themselves, or (if there is no board of directors), the person responsible for the oversight of the accounting and financial reporting processes and audits of the organization (PCAOB, Section 3, 2003-2021). The audit committee’s role is to ensure that the interests of various stakeholders are served, and that the additional services (tax or otherwise) do not compromise the ability of a public accounting firm to provide audit or attestation services with objectivity and independence, so that the integrity of these services is not compromised. Without these safeguards in place, the public trust can be undermined when auditing firms (who provide additional services) become complicit with their auditing clients who operate unethically or illegally, as was the case with Arthur Andersen and Enron. The audit committee serves as a safeguard, designed to prevent similar accounting scandals from happening in the future.