All you need to know about auditing
Auditing is the objective examination and evaluation of a company’s financial statements. This is usually performed by an external third party but can also occur with internal parties as well as government entities.
Auditing is very important in the accounting world, and audits will take place by examining and verifying a company’s financial records to make sure that transactions are represented fairly and accurately.
The three main financial statements that will need to be prepared, checked and set to their relevant accounting standards for an audit are income statements, balance sheets ad cashflow statements.
These statements are prepared internally before auditing and are used to provide useful information to creditors, shareholders, customers, government entities, partners and suppliers.
Financial statements aim to capture the operating, financing and investing of a company through it’s recorded transactions. All of these statements are recorded and developed internally, which means there can be a high risk of fraudulent behaviour. Without standards and regulations in place, businesses can present themselves to be more profitable and successful than they are in reality. This is why auditing is so important. It ensures that a company is representing their financial position accurately and fairly.
There are three main types of audits. Internal, external and government.
Internal audits occur within a business itself. The audit is performed by an internal employee or company organisation. This particular type of audit is not made to be shared and distributed outside of the company, but rather prepared for management or for other internal stakeholders.
These audits can help with improving decision making withing a company by giving managers a good overview of the company’s financial position, as well as provide them with action items that can help improve internal controls. It is also a good opportunity for them to ensure that all laws and regulations are being followed.
The second type of auditing is external audits. This occurs when an external organisation performs the audit in order to provide an unbiased opinion that can sometimes be hard for internal staff to perform. These external audits are used to determine whether or not there are any errors or misstatements in a company’s financial statements.
External audits are really important when it comes to allowing various stakeholders to confidently make decisions surrounding the company that is being audited. This is an even more reliable source than an internal audit as the information represented is more honest ad there are no personal factors tied to the company like there may be if the audit was performed internally.
The last type of audit is a government audit. Government audits are performed by entities that relate to ensuring that financial statements have been prepared accurately to prevent the misrepresentation of the amount of taxable income a company has.
Misstating taxable income, whether it be a mistake or intentional, is considered tax fraud.
Once a government audit has occurred, it can result in no change to the tax return, a change that is accepted by the taxpayer or a change that is not accepted. If the latter option occurs, the issue will go through a legal process of mediation or appeal.
Auditing is an extremely important business process that needs to be regularly and thoroughly carried out in order to avoid any misrepresentation of a company’s financial situation. If you need any help or advice in regards to your company’s audit, please don’t hesitate to get in contact!
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If your business provides a car to an employee (or you’re the business owner/employee using it), there’s a good chance the Fringe Benefits Tax (FBT) rules apply. A car fringe benefit arises when a car owned or leased by an employer is made available for the private use of the business owner, an employee or their associate (such as a family member). “Private use” doesn’t just mean weekend road trips — it can include everyday commuting and even cases where the car is parked at an employee’s home, making it available for personal trips. Understanding how FBT is calculated and what records to keep is essential for compliance — and for avoiding paying more tax than necessary. What counts as a “car” for FBT purposes? The FBT law defines a car as a motor vehicle (except a motorcycle or similar) designed to carry less than one tonne and fewer than nine passengers. From 1 July 2022, some zero or low-emission vehicles are exempt from FBT, provided they meet certain criteria — for example, they must be first held and used after 1 July 2022 and must not have attracted Luxury Car Tax. Electric vehicle running costs, such as charging, are also exempt when the vehicle itself qualifies. Two main methods for calculating FBT on cars There are two ways to calculate the taxable value of a car fringe benefit. 1. Statutory formula method This method applies a flat 20% statutory rate to the base value of the car, adjusted for the number of days in the FBT year the car was available for private use. The formula is: (A × B × C ÷ D) − E A = Base value of the car (cost price plus GST and certain accessories, less registration, stamp duty and eligible reductions) B = Statutory fraction (generally 20%) C = Days available for private use D = Total days in FBT year (365) E = Employee contributions If the car has been owned for at least four full FBT years, the base value can be reduced by one-third. 2. Operating cost method This method calculates the taxable value by applying the private use percentage to the total operating costs of the car (actual and deemed costs). The formula is: Taxable value = [Operating costs × (100% − Business use %)] − Employee contributions Operating costs include: Fuel, oil, repairs, maintenance, registration and insurance Lease costs (for leased cars) Deemed depreciation (25% diminishing value) and deemed interest for owned cars Certain costs, such as tolls, car parking and insurance-funded repairs, are excluded. The business use percentage is determined by odometer readings, logbook records, and a reasonable estimate based on usage patterns. The three-month logbook requirement (operating cost method only). If you use the operating cost method, you must keep a logbook for at least 12 continuous weeks (roughly three months) to record: The date of each trip Odometer readings at the start and end Total kilometres travelled Whether the trip was for business or private purposes The purpose of each business trip This logbook is generally valid for five years, but you must start a new one if usage patterns change significantly (e.g., a role change, relocation or different duties). You also need to record odometer readings at the start and end of each FBT year. Why record-keeping matters. Keeping accurate records can support a higher business use percentage (and therefore a lower FBT bill). They also ensure you claim only legitimate business kilometres and help you provide evidence if the ATO reviews your FBT calculation. Finally, your records help you decide which calculation method (statutory or operating cost) is more tax-effective. Key takeaways for businesses and employees. If a car is available for private use, FBT may apply — even if the car isn’t driven often for personal trips. Electric cars may be FBT-exempt if they meet eligibility criteria, but you may still need to calculate their taxable value for reporting purposes. The operating cost method often works better if business use is high — but only if you have a compliant logbook. Keep odometer readings, expense records and a valid logbook to support your claims. Need help with your FBT obligations? Get it at Ascent Accountants. We guide business owners through every step of FBT compliance — from choosing the right valuation method to maintaining the right records for ATO peace of mind. If you provide cars to employees or use a company vehicle yourself, now is the time to review your FBT position before the next FBT year rolls over. Let’s talk .
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