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Audit Partners Overly Pessimistic About the Economy

The Center For Audit Quality recently did a poll of 700 audit partners from the eight largest firms in the US on the state of the economy over the next 12 months. 84% responded either pessimistically or in a neutral fashion on the future state of business.

The top four reasons for these answers were problems with inflation, labor shortages, supply shortages, and other supply chain issues. The auditors further responded in the following manner.

1 – 75% thought that inflation would be an issue for more than the next 12 months.

2 – 77% believed that companies would increase prices greater than historic trends to maintain their margins.

3 – 95% expected pricing increases on consumer products.

4 – 94% expected industrial product pricing increases.

In considering this, one might ask a question such as, “Who cares what an auditor thinks?” They might also say that they aren’t economists.

While this is certainly true, we see the numbers before anyone else. We dig through the data to create them. We see the trends and certainly understand the numbers better than any economist because we go through the pain necessary to establish and formulate the end product.

I’m writing this to caution all Entrepreneurs. Just because the stock jockeys and economists don’t think it’s coming, doesn’t mean it isn’t.

They only see and interpret the numbers after we create them in the first place.

Your numbers are more important than ever before. Get your work into us every month and pay close attention to the financials we prepare. If you have any questions, please ask.

Watching your margins and making the necessary adjustments may be the only way you get through the coming difficulties.

Let me leave you with this.

Former 11th Ward Alderman and heir apparent of the Daley Dynasty, Patrick Daley Thompson, was sentenced to four months in prison yesterday. He was convicted of income tax evasion and lying to federal prosecutors.

At the Daley Clan’s height of power, this conviction would have been inconceivable. The very thought preposterous.

Yet here we are. And they got him, an experienced attorney and political operative, on something as brainless and pathetically ignorant as income tax evasion.

What did he do? He took a deduction for mortgage interest he didn’t pay on five annual income tax returns and lied about it to the Feds.

I want you to take a moment and think about how easy it is for the Feds to prove a case, almost any case, and get a guilty verdict on income tax evasion.

Former Alderman Thompson filed an income tax return and took a deduction for mortgage interest. The IRS received a copy of the annual 1098 from the bank showing what interest he paid on his mortgages that was actually deductible.

So the computer tried to match the deduction on the 1040 against the 1098 that the Feds got from the bank. When it didn’t match up, the schedule was red-flagged and the return was audited.

You need to understand how easy this is for the Feds to prove. It’s pathetically simple. 

The Revenue Agent pulls out a copy of your income tax return showing the deduction and asks for proof that you paid the interest. When you can’t prove that you made the payments, you’re guilty.

If you also make the mistake of lying about it, you’re also guilty of lying to the Feds. Open and shut. Done. Forgetabadit. You’re the next contestant on that fun, family game show aptly named, “Don’t Drop The Soap.”

There goes his life. There goes his reputation. There goes his ability to maintain a law license. Once he gets out of the joint, he’ll be lucky to get job pushing a broom somewhere.

Anyone who knows me and has ever had their income taxes prepared by my firm know how tough we are on gathering factual information and properly preparing a return under the IRS Code and the Laws of our Great Nation. We aren’t playing any games, because this is what happens when someone is lax in the process.

We’ve lost several customers over the years because we are tough on gathering the facts and properly presenting them on a return. The IRS Code is unyielding and so is our approach to completing returns that will stand up to audit.

Let’s make this overly simple. If you want to cheat on your returns don’t waste me time. Please find someone else. 

On the other hand, if you’d like to stay out of the joint and be able to sleep at night, please don’t hesitate to call. We’d love to help you.