Structured Biiz

AUDITING

Auditing refers to checking or verification of the financial data of a business by a competent, qualified and independent person. It is a systematic and independent examination of the financial data, records, statements, etc of a business enterprise that have been prepared in the exercise of book keeping and accountancy. It is a process involving judgement, intellect and documentation. It determines the integrity of the entire accounting system followed by the business. This examination is conducted by an ‘Auditor’ who is competent and qualified for the same. Even if auditing may not be mandatory, it is a good practice to have in place.

Reporting Requirements

Auditing is required to be conducted as per the prescribed standards on Auditing. It is conducted for a specific period and at the end of the auditing exercise, the auditor codifies his opinion in a report known as an “Audit report”. Where the auditor is satisfied that the financial statements depict a true and fair view of its business activities, he would provide a clean audit report. In other cases, the auditor may provide a ‘Qualified’ audit report specifically disclosing the areas of the financial statements which do not reflect a true and fair view of the matters of business.

Types of Audit

There are different types of Audit which can be availed depending on the needs of the business. The same have been summarised below:

Internal Audit

Statutory Audit

Tax Audit


NATURE:

This audit is conducted by the business entity itself. The Auditors are appointed by the business itself and the auditing exercise goes on all round the year. The Internal Auditors are employees of the business and ensure that the accounting of financial transactions is being done correctly.


NATURE: 

This is an Audit conducted by external third party auditor(s). Such Auditor is required to be a qualified Chartered Accountant and are required to conduct the audit as prescribed under the Indian Companies Act 2013.


NATURE: 

This audit is conducted by external third party qualified personnel for verification of the financial statements from a direct taxation perspective. This audit is required to be conducted as per Section 44AB of the Income-tax Act, 1961. It is conducted to highlight all the compliances and non-compliances done by a business from a direct tax stand point.


REQUIREMENT: 

Conducting an internal audit is optional. Certain businesses conduct internal only to maintain better control.


REQUIREMENT: 

Statutory Audit is mandatorily required to be conducted by a Limited Liability Partnership Firm if its turnover exceeds Rs 40 lakhs or contribution exceeds Rs 25 lakhs. Further, Statutory audit is mandatorily required to be conducted by all companies irrespective of their turnover. 


REQUIREMENT: 

A person carrying on a business is required to get his books of account audited if his turnover / gross receipts exceed INR 1 crore. A person carrying on a profession is required to get his books of account audited if his gross receipts exceed INR 50 lakhs.


TIME TAKEN: 

Whole year (or entire period for which the audit is being conducted)


TIME TAKEN: 

The time taken to conduct Statutory Audit depends on the size and complexity of the business. On an average, a Statutory Audit may take anything between one month to four months of time.


TIME TAKEN: 

The time taken to conduct tax audit depends on the size and complexity of the business. On an average, a tax audit may take anything between 15 days to two months of time.


OUTCOME: 

An audit report is prepared and presented to the management. There is no specific format for this report.


OUTCOME: 

The observations of the Auditor are recorded in the form of an ‘Audit Report’. The format of this report has been prescribed under the Indian Companies Act 2013.


OUTCOME: 

The observations of the auditor are recorded in the form of an ‘Audit Report’. The format of this report has been prescribed under the Income-tax Act, 1961.

Other Types of Audit

Cost Audit

Statutory Audit


This refers to the detailed verification of all crucial elements of cost comprising the business. As such, this audit is optional in nature. However, at times, the Government may mandate some companies to have this audit conducted. Further, it is mandatorily required to be conducted by businesses operating in health care, construction and education industries. Cost audit is covered under Section 148 of the Indian Companies Act 2013. The observations of the auditor are required to be documented in a Cost Audit Report.


These audits could include compliance audits, efficiency audits, secretarial audit, operational audit, environment audit, performance audit, social audit, etc. These are optional in nature. However, having such audits conducted would be healthy for the business as it would be engineer possibilities for making positive changes in the existing business environment.

Consequences of non-compliance

Where audit is mandatorily required to be conducted and has not been conducted, penal implications would be triggered under the Indian Companies Act 2013 and the Income-tax Act, 1961. 

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