The correct auditing method that involves a thorough examination of the taxpayer's financial records on-site is the field audit. In a field audit, IRS agents or auditors conduct in-person visits to the taxpayer's business or place of residence to review financial documents, such as income statements, expense reports, and supporting documentation for deductions and credits claimed. This method allows auditors to gather comprehensive information directly from the source, facilitating a deeper understanding of the taxpayer's financial situation and ensuring compliance with tax laws.
This method contrasts with other types of audits. For instance, a correspondence audit typically involves the IRS sending requests for information via mail, focusing on specific issues or discrepancies without an on-site visit. A randomized audit would involve selecting taxpayers at random for audit purposes but does not necessarily involve the thorough examination characteristic of a field audit, nor does it imply a specific methodology like an on-site visit. A compliance audit focuses on ensuring that the entity complies with regulations but doesn't necessarily involve a detailed on-site examination of financial records like a field audit would.