Giving your QuickBooks company data to an IRS Auditor is almost like inviting a stranger into your home – you don’t know what they will do, and at this point in time, I haven’t found any information on exactly what an Auditor will look for or what they will do once they do get their hands on your data file.
To be honest, I don’t even know if they are required to return your QuickBooks (or Peachtree) data file to you once they are done. I do have to assume that they are required to do so, but you never know………..
Hopefully, you will follow the suggestions outlined in An IRS Audit and They Want Your QuickBooks File – Best Practices article and provide a data file that ONLY contains the year in question.
The last thing that you really should do before handing over the file to be audited is to create an External Accountant User for their use – do not give them your Administrator password.
An External Accountant is a fairly new type of QuickBooks user account that was introduced a couple of years ago. Anyone who logs into your QuickBooks file as an External Accountant User has access to all areas and information contained in your data file with the exception of sensitive customer data, such as credit card information (if you keep customer credit card data in your file).
To create an External Accountant User
You will need to be logged into QuickBooks as the Administrator and I believe you need to be in single-user mode.
- From the Company menu, choose Setup Users and Passwords
- Select Add User
- Enter a new user name and password – write this information down and give it to the auditor, and click Next
- Choose External Accountant in the Access screen and click Next
- Click Yes on the Warning message to confirm that you want to create an External Accountant User
- Click the Finish button
By creating the External Accountant user, you will be able to pull up an audit trail report to see if they changed anything if the file is returned. Of course this is getting a little paranoid, but one of the fears that I’ve seen people discussing is what if the auditor goes in and changes something…….
Please feel free to leave your own comments, suggestions and thoughts for best practices on this new procedure – it will be of benefit to everyone.
Greg
I agree in both instances. The only way that the audit trail can be removed currently is to have the file worked on by one of the folks who specialize in file reduction.
Having an enabled audit trail in a file provided to an auditor is a minefield, especially if you provide a client file, simply because you do not know how innocent mistake/reversal could be interpreted. An inability to purge audit trail is a major design problem in Quickbooks.
Hi Dot
Thanks so much for dropping by and providing this insight (it’s been a lot of years since I had to deal with an audit), at that time none of the “paper” records were returned. Just wondered if things had changed since I had been out of the loop.
This does bring up another important issue, what is done with the electronic records?
If you give IRS financial reports, they do not return those. If you give IRS copies of checks and bank statements, they do not return those. Electronic data is the same as paper data – just in a different form. So, I would not assume that the IRS would return any electronic data that you give them.
Wayne – wow excellent point! It never crossed my mind that an IRS Auditor would use a password discovery tool to obtain an Admin password; would they really do something like that? One can only hope that there are protocols in place in this new audit process that would protect us all from that sort of behavior. But going along with your thoughts of changing the Admin password; couldn’t those same password discovery tools be used to find out the new Admin password as well as an original password?
Excellent Nancy! Hope I never need to use this info. But if I did, and knowing that there are password discovery tools available, i would probably also change the Admin password. At first while reading your article I was thinking ‘why not just delete all passwords and give them only a new Admin’…but then I realized, if there are SS or Credit Card numbers in the file, the Accountant User limitations would safeguard those (assuming the above-mentioned utilities were not used).