7 Essential IRD Audit Checklist Steps for NZ Businesses

What Is an IRD Audit Checklist?

An IRD audit checklist is a practical list of records, accounts and compliance areas that a New Zealand business can review before an Inland Revenue audit.

An IRD audit is a check of tax and business records to determine whether the correct amount of tax has been paid. Audits can cover areas including income tax, GST and employer returns.

Having an organised checklist can help business owners identify missing information before IRD requests it.

This is particularly important for businesses that use accounting software, because an audit can involve electronic accounting and transaction-level information as well as traditional source documents.

If you want to understand how digital records can be examined during an audit, read our guide to IRD computer audits and digital accounting records .

7 Essential IRD Audit Checklist Steps

Before an audit, work through the following seven areas. The exact information IRD requires will depend on the circumstances and scope of the audit.

1. Check Your Business Income Records

Start by checking that your business has properly recorded its income.

This can include cash and electronic sales, invoices, payments received, credit card transactions and other business income.

Inland Revenue states that businesses must keep records of cash and electronic sales and purchases for 7 years.

As part of your IRD audit checklist, check whether:

• All business sales have been recorded.
• Cash sales have been included.
• Electronic sales are properly recorded.
• Invoices and receipts are available.
• Sales records reconcile with your accounting system.
• Bank deposits can be explained.

For more information, see the official IRD guidance on income and expense records .

2. Reconcile Your Bank and Accounting Records

Your accounting records should provide a clear explanation of the money moving through your business.

Review your business bank accounts, credit cards and accounting records to identify unreconciled or unexplained transactions.

Your review should include:

• Business bank accounts
• Credit card accounts
• Cash accounts
• Bank deposits
• Business withdrawals
• Personal funds introduced into the business
• Personal drawings where applicable

IRD states that businesses need to keep relevant banking records and clearly identify money taken from or introduced into business accounts.

Read the official IRD bank records guidance for more information.

3. Review Your GST Records

If your business is GST registered, GST records should be one of the key areas in your pre-audit review.

Check that your GST returns can be supported by the underlying accounting records and taxable supply information.

Review:

• GST returns
• Taxable supply information
• Supply correction information
• GST collected
• GST claimed on purchases
• GST account reconciliations
• Supporting invoices and records

Your GST return should be supported by records that allow the figures to be explained if requested.

If your business needs help reviewing its tax records, visit DFK Orb360 Chartered Accountants .

4. Check Payroll, PAYE and Employer Records

If your business employs staff, include payroll and employer obligations in your pre-audit review.

Check that you can access:

• Payroll records
• Employee wage information
• PAYE records
• KiwiSaver information where applicable
• Student loan deductions where applicable
• Other relevant employee deductions
• Employment agreements and supporting records

Inland Revenue’s current business guidance identifies employee and PAYE information as part of the records businesses need to maintain.

As part of your IRD audit checklist, compare payroll records with the amounts reported through your employer returns.

5. Organise Expenses and Supporting Documents

Business expenses should be supported by appropriate documentation.

Before an audit, review whether significant expenses can be traced back to invoices, receipts, bank transactions or other relevant source documents.

Depending on your business, this can include:

• Supplier invoices
• Receipts
• Credit card records
• Travel records
• Motor vehicle records
• Entertainment expense records
• Home-office records where applicable
• Asset purchase documentation
• Business contracts
• Lease agreements

Inland Revenue’s record-keeping guidance lists invoices, receipts, bank statements, credit card records and other source documents among the records businesses may need to retain.

You can review the official IRD record-keeping requirements for the current requirements.

6. Check Your Digital and Historical Accounting Records

Modern businesses often rely on cloud accounting and other electronic systems. Your IRD audit checklist should therefore include your digital records.

Check that:

• Historical accounting data can still be accessed.
• Your backups are working.
• Electronic records can be retrieved and read.
• Previous accounting systems have been properly documented.
• Relevant general ledger information is available.
• Account codes and system documentation can be explained.
• Records remain available after software changes.

Inland Revenue states that computer-based records must contain the necessary information, be kept for at least 7 years, and be retrievable and readable.

IRD also provides specific guidance about computer-assisted audits and electronic accounting records.

Read our detailed article: How IRD Reviews Digital Accounting Records During a Computer Audit .

7. Compare Your Tax Returns With Your Accounting Records

Finally, check that the information submitted to Inland Revenue can be reconciled with your accounting records.

Depending on your business, review relevant:

• Income tax returns
• GST returns
• PAYE and employer returns
• Financial statements
• General ledger reports
• Tax calculations
• Supporting workpapers

The goal is to have a clear trail from the original transaction through your accounting system to the figures reported to IRD.

What Documents Should You Have Ready for an IRD Audit?

The documents required will depend on the scope of the audit and the tax obligations being reviewed.

However, businesses should generally be able to access relevant records supporting their income, expenses, assets, liabilities and tax returns.

Common business records include:

• Invoices and receipts
• Bank statements
• Credit card records
• Cashbooks
• General ledgers
• Journals
• GST records
• Payroll records
• Tax calculations
• Financial statements
• Asset registers
• Depreciation calculations
• Business contracts
• Lease agreements
• Relevant digital accounting records

Inland Revenue’s Record keeping checklist provides a detailed list of records that different types of businesses may need to retain.

What Should You Do If IRD Contacts Your Business About an Audit?

If Inland Revenue contacts your business about an audit, start by carefully reviewing the information request and identifying the records relevant to the scope of the audit.

IRD states that businesses selected for an audit will be given reasonable notice and that additional information may be requested during the audit.

You should:

1. Read the audit communication carefully.
2. Identify the tax periods and areas being reviewed.
3. Gather the requested records.
4. Check that your accounting records are complete.
5. Identify any missing or inaccessible historical records.
6. Consider speaking with your accountant or tax adviser.
7. Respond to IRD within the relevant timeframe.

You can read Inland Revenue’s official audit guidance for information about the audit process.

Common Record-Keeping Problems to Check Before an IRD Audit

A pre-audit review can help identify gaps before they become more difficult to resolve.

Missing supporting documents

A transaction may appear in your accounting system but lack an invoice, receipt or other supporting documentation.

Unreconciled bank accounts

Unreconciled accounts can make it harder to explain the relationship between bank activity and your accounting records.

Old accounting software data

Historical records may become difficult to access after changing accounting systems.

Inconsistent tax and accounting figures

Differences between accounting reports and tax returns should be understood and documented.

Incomplete digital backups

Businesses should not assume that cloud storage automatically solves every record-keeping problem. Historical data still needs to be accessible and readable.