Preparing for an external audit can feel overwhelming, especially for businesses facing it for the first time. However, with the right approach and preparation, audits can be managed smoothly and even used as an opportunity to strengthen internal processes.
This blog outlines best practices during an audit and offers a practical checklist for preparing for an external audit. Whether you’re wondering what to do in an audit or how to ensure your documentation is in order, our guide will help you stay organised, responsive, and audit-ready at all times.
Step 1: Identify the Audit Type and Understand Your Rights
When preparing for an external audit, it’s essential to understand the nature of the audit you’re facing. In France, audits generally fall into three categories:
- Desk audit (contrôle sur pièces): Conducted remotely by tax authorities using the information you’ve submitted in your declarations.
- Accounting review (examen de comptabilité): Also remote, this audit focuses on the digital accounting records, particularly the FEC (Fichier des Écritures Comptables), which you must provide within 15 days of request.
- On-site audit (vérification de comptabilité): The most detailed form, where auditors visit your premises to examine financial records in person. This is typically what people refer to when they talk about a “tax audit.”
Before any audit starts, businesses receive an official notice by registered mail. This includes:
- The fiscal years under examination
- The option to have professional representation
- A copy or reference to the taxpayer’s charter (Charte du contribuable vérifié)
- Contact information for the auditor and their supervisor
- The taxes involved and the date of the first meeting
Legally, the initial audit visit cannot take place until at least two full working days after this notice is received. To know more about audit requirements, you can read our blog on Statutory Audit Requirements in France.
Step 2: Gather and Organize Your Financial Documentation
An essential part of preparing for an audit is having all required documentation in order. You should compile:
- The digital FEC file for each relevant year
- Invoices, bank statements, and client/supplier contracts
- General ledgers, trial balances, and journals
- Tax returns and supporting evidence for VAT, corporate tax, and other declarations
Audits usually cover the three most recent closed financial years, although this period can be extended in certain cases.
Organize your records by year and category to allow quick access. Being proactive, especially regarding sensitive areas like tax credits, cross-border transactions, or intercompany dealings, can help anticipate auditor concerns.
Step 3: Choose Who Will Support You During the Audit
Part of your audit preparation should involve determining who will represent your company during the audit. This can include:
- Your accountant, who understands your financial records and can provide technical explanations.
- A tax lawyer, particularly valuable in cases of legal interpretation or potential disputes.
If someone other than a lawyer is handling the audit on your behalf, you must give them a written authorization (mandate) in advance. Having this documentation ready before the audit begins avoids unnecessary delays.
Step 4: Maintain a Professional and Cooperative Tone
A key principle in any audit is the presumption of good faith. Tax authorities must justify any reassessment. However, if you withhold documents or appear uncooperative, the burden of proof may shift back to you.
Make sure the FEC file is accessible from the very first meeting. Maintain a constructive tone and encourage open dialogue. The audit process is intended to be interactive, and clear communication can prevent misunderstandings.
Auditors are authorised to:
- Review your financial and tax documents
- Make copies (they must return originals with a receipt)
- Examine sample transactions, especially for VAT accuracy
- Ask for clarifications or supporting details
However, they must respect legal limits. They cannot:
- Operate outside standard business hours (8 a.m. to 8 p.m. on weekdays)
- Remove original documents without your consent
- Disrupt your core business operations
Refusing to cooperate can lead to serious consequences, including automatic reassessments, higher penalties, and the loss of your right to appeal.
Step 5: Respond Promptly to Requests from the Auditor
During the audit, the auditor may request further information or clarifications, particularly in areas with high scrutiny, such as:
- VAT compliance
- Group-level transactions
- Unusual provisions or accounting adjustments
- Shareholder account movements
There are specific deadlines for responses:
- Information requests: You generally have 30 days to reply. Not responding does not automatically result in reassessment.
- Requests for justification: These require a response within two months, although extensions may be granted if requested in writing.
Responding on time and with clarity is the best practice during an audit and reinforces your business’s credibility.
Preparing for an Audit Checklist
To help you prepare better for you next external audit in France here is a checklist.
An external audit doesn’t have to be stressful, being proactive, organized, and informed is key. By understanding the process, preparing your documents in advance, and seeking the right professional support, you can navigate the audit confidently.