Audit is a key tool for control and transparency in business. However, many don’t realize that there are several types of audits, each with its own goals, methods, and implications. The most common are tax audit and financial audit.
At first glance, they may seem similar — both involve document checks, error detection, and expert involvement. But there are key differences every entrepreneur, accountant, and business owner should know.
In this article, we will cover:
- how tax audit differs from financial audit;
- when each type is needed;
- and how to choose the right audit for your company.
What is a tax audit
Tax audit is a review of the accuracy of a company’s tax calculations and payments. It is conducted to ensure that the organization complies with tax legislation and does not carry hidden tax risks.
Main objectives of a tax audit:
- Review of all tax returns (VAT, income tax, social contributions, etc.);
- Analysis of primary documents for potential tax violations;
- Identification of possible fines and risks from tax authority inspections;
- Recommendations for correcting issues and optimizing the tax burden.
When tax audits are conducted:
- Before an external tax inspection (for preparation and self-diagnosis);
- When changing an accountant or auditor;
- Before submitting the annual financial report;
- During business restructuring or company sale.
A tax audit can be initiated voluntarily by the company or required by law in specific situations.
What is a financial audit
Financial audit is an independent review of a company's accounting (financial) reports aimed at confirming their accuracy, compliance with standards, and absence of significant misstatements.
Such audits are usually carried out by external auditing firms and are based on international standards (IFRS, ISA) or national financial reporting regulations.
Main goals of a financial audit:
- To confirm the reliability of financial data for investors, banks, and partners;
- To assess the effectiveness of internal controls and management systems;
- To prepare for market entry, investment attraction, or business sale;
- To verify the correct accounting of assets, liabilities, income, and expenses.
When a financial audit is required:
- For companies legally obliged to undergo an audit (based on size or ownership type);
- When obtaining loans, investments, or grants;
- At the request of foreign partners or parent companies;
- When preparing for an IPO or selling a share of the business.
Financial audit — is not just a control mechanism, but a strategic tool to build trust in your business.
Comparison between tax and financial audit
Although both audit types involve checking financial data, their purposes, scope, and methods differ. Here are the key differences:
1. Purpose of the audit
- Tax audit: verification of correct tax calculations and payments, identifying risks before a tax inspection.
- Financial audit: confirmation of the reliability of financial statements for stakeholders (investors, banks, shareholders).
2. Object of analysis
- Tax: tax reports, declarations, tax registers, budget settlements.
- Financial: full accounting reports — balance sheet, profit and loss statement, cash flow statement, etc.
3. Methodology
- Tax: focus on compliance with tax law; targeted checks of specific taxes.
- Financial: sample testing, review of accounting entries, evaluation of internal control systems.
4. Who performs the audit
- Tax: often by an internal auditor or an invited firm on the company’s initiative.
- Financial: usually by a certified external audit firm.
5. Result
- Tax: recommendations to eliminate tax risks, preparation for inspections.
- Financial: audit report — an official document confirming the reliability of the financial statements.
When to choose tax audit and when to choose financial audit
The choice between tax and financial audit depends on your business goals, current situation, and external requirements. Below are typical scenarios.
Choose a tax audit if:
- Your company expects a tax inspection from authorities (CNAS, SFS, etc.);
- You’ve changed your accountant or found errors in tax reporting;
- You want to identify tax risks in advance and avoid penalties;
- You need to verify a specific tax (e.g., VAT or income tax).
Choose a financial audit if:
- Your company is preparing to attract investors or apply for a bank loan;
- You are legally required to conduct an audit (based on turnover, size, or ownership form);
- You need an official audit opinion for external users;
- You’re preparing for a merger, business sale, or entering international markets.
Sometimes it's wise to do both audits
Some companies choose a combined approach: first a tax audit to eliminate risks, then a financial audit for official reporting. This strategy increases business credibility and transparency.
Advantages and risks of each audit type
Each type of audit offers unique benefits to a business, but if poorly executed, it may also bring certain risks. Below are the key advantages and potential drawbacks.
Advantages of tax audit:
- Reduced likelihood of penalties from tax authorities;
- Early detection of calculation and reporting errors;
- Opportunities for tax optimization;
- Increased confidence of management in accounting accuracy.
Risks:
- Identifying serious violations may require urgent intervention;
- Poor execution may result in incorrect conclusions and misinformation;
- Requires an experienced team with up-to-date knowledge of tax legislation.
Advantages of financial audit:
- Increased trust from investors and financial institutions;
- Public confirmation of financial stability;
- Support for strategic decisions (mergers, IPOs, funding rounds);
- Improved transparency and internal company control.
Risks:
- High cost of working with external auditors;
- May expose and document existing financial problems;
- Reputational risks in case of a negative audit opinion.
Choosing the right type of audit strengthens the business, reduces legal and financial threats, and reinforces its market position.
How to choose the right audit: checklist and expert tips
Choosing between tax and financial audit isn’t always obvious. Use this checklist to simplify your decision:
Checklist: which audit does your company need?
-
Afraid of a tax inspection or want to review your taxes?
→ Tax audit -
Need a loan, investment, or grant?
→ Financial audit -
Frequent errors in financial reports?
→ Both (tax for corrections, financial for confirmation) -
Legally required to conduct an audit (based on turnover, company type, etc.)?
→ Financial audit -
Want to improve internal control and business processes?
→ Financial audit -
Preparing for sale, merger, or international expansion?
→ Financial audit -
Need a quick tax document review before reporting?
→ Tax audit
Recommendations from Intelcont experts:
- Consult independent auditors — they can help you choose the best approach;
- Plan audits in advance, especially before reporting deadlines;
- Consider your business size and goals — full audit may not always be necessary;
- If on a tight budget — start with an express review or partial audit.
Conclusion
Tax and financial audits are two essential tools that help businesses operate legally, transparently, and efficiently. While the procedures may look similar, they serve different goals, approaches, and functions.
- Tax audit protects against fines, prepares you for inspections, and reveals risks in your tax reporting.
- Financial audit builds trust, strengthens your company’s image, and is crucial for external stakeholders and strategic growth.
The key is understanding which type of audit your business needs. Ideally, combining both approaches gives you full confidence in your financial reporting.
📞 Not sure where to start?
Request a consultation — Intelcont experts will help you choose the right audit format, prepare documents, and provide complete support.
