Processing an audit adjustment that increases a taxpayer's liability requires which action?

Processing an audit adjustment that increases a taxpayer's liability requires which action?

• A. Notify the taxpayer first and then adjust records.
• B. Update the ledgers without journal entries.
• C. Issue the adjustment through official journal entries and update ledgers, and notify the taxpayer.
• D. Delay the adjustment until the next audit.

Answer: (C)

Processing an audit adjustment that raises a taxpayer’s liability requires recording the change in the official books, updating all relevant ledgers, and informing the taxpayer. The formal journal entries are the proper mechanism to reflect the liability increase in the general ledger and any subsidiary records, creating a clear, auditable trail. After posting, the taxpayer must be notified so they understand the proposed adjustment and have the opportunity to respond or appeal if needed. Skipping journal entries breaks the accounting record integrity, updating ledgers alone lacks a proper audit trail, and delaying notice to the next audit undermines due process and timely resolution.

Processing an audit adjustment that raises a taxpayer’s liability requires recording the change in the official books, updating all relevant ledgers, and informing the taxpayer. The formal journal entries are the proper mechanism to reflect the liability increase in the general ledger and any subsidiary records, creating a clear, auditable trail. After posting, the taxpayer must be notified so they understand the proposed adjustment and have the opportunity to respond or appeal if needed. Skipping journal entries breaks the accounting record integrity, updating ledgers alone lacks a proper audit trail, and delaying notice to the next audit undermines due process and timely resolution.