What does audit risk in corporate income tax refer to?

Audit risk in corporate income tax specifically refers to the potential that a company may face a tax audit from the taxing authority, which could result in an assessment of additional taxes owed, along with potential penalties for underreporting income or overstating deductions. This concern drives firms to ensure that their accounting practices, tax filings, and compliance measures are meticulous in order to minimize the risk of being selected for an audit and subsequently facing financial penalties or additional tax liabilities.

While some of the other options touch on aspects of the tax filing process, they do not directly capture the essence of audit risk. Denied tax refunds involve the process after a filing and do not pertain to the risk of being audited. Lower tax rates or obtaining tax credits are also related to the outcomes of tax filings but are not risks associated with the possibility of an audit. Thus, understanding audit risk centers around the implications and potential consequences of a tax audit rather than the scenarios impacting refunds, rates, or credits.