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Explain What a Lapping Scheme Is, Provide an Example of a Lapping

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Essay

Explain what a lapping scheme is, provide an example of a lapping scheme, and explain what the auditor should be alert for to detect a lapping scheme.


Definitions:

Adjusted Gross Income

Gross income minus adjustments, used as a base for calculating taxable income and determining eligibility for certain tax deductions and credits.

Social Security Taxes

Taxes paid by workers and employers to fund the Social Security program, which provides retirement, disability, and survivorship benefits.

Medicare Taxes

Taxes withheld from pay or paid on profits that contribute to the Medicare program, providing health insurance for individuals over 65.

Self-Employment Tax

A social security and Medicare tax primarily for individuals who work for themselves.

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