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Brief description on importance and types of audit in India. Auditing is a very important part of doing business. This is when you officially inspect the accounts of your organization to know where there are deficiencies through which your business can lose money. Money is going out. As a matter of fact, not doing so can have serious consequences for the financial health of any organization.
In this post we want to look at India, and see how things are done in this country as per the auditing of company accounts. Of course Indian citizens should be very familiar with this system, but for any foreign executive working in India,It is a good idea to have a basic understanding of the audit procedures in the country. So for their benefit we present the types of audit in India.
Types of Audit in India
Audits are generally divided into two types:
statutory audit
internal audits
Importance of Types of Audit in India
statutory audit
Statutory audit is conducted by the direction of state authorities to report the position of the company's finances and accounts to the Government of India. Such audits are generally conducted by qualified auditors who are acting as external and independent parties.
Importance:
They are usually done to clarify tax matters. The audit report of a statutory audit is made by the government department in the prescribed form.
internal audits
Internal audit is conducted at the request of the internal management of the said organization to examine the state of the company's finances and study the operational efficiency of the organization as well as to prevent misuse of funds. An independent party contracted by internal audit management orCan be done by the company's own internal employees.
Importance:
Internal audits examine the state of company finances and study the operational efficiency of the organization, as well as prevent misuse of funds.
Statutory Audit Reporting in India
In India, statutory audit is conducted by every company for each financial year (1 April to 31 March) and not the calendar year. Many people usually make the mistake of thinking that this is done at the beginning of the calendar year. The two most common types of statutory audits in India are:
tax audit; And company audit.
tax audit
Tax audit is a matter of law, required under Section 44AB of the Income Tax Act 1961 of India. This section states that every person whose company or business has a turnover of Rs 10 million (US$134,508) in a particular year, and every person workingAnyone carrying on a profession whose gross income exceeds Rs 5 million (US$67,254) must have its accounts audited or inspected by an independent chartered accountant.
It is important to note that tax audit is mandatory for everyone, be it an individual, a partnership firm, a company or any other entity as long as they meet the financial targets. 0.5 percent of the company's turnover for non-compliance with tax audit provisions or A fine of ₹100,000 (US$1,345) may be imposed.
company audit
Every company in India, regardless of the nature of its business or the amount recorded as turnover, must have its annual accounts audited every financial year. This is a matter of law, and the provisions of this law are contained in the Companies Act, 2013. For this purpose, the company and its directors must first appoint or contract an auditor.
Subsequently, at every Annual General Meeting (AGM), an auditor is appointed by the shareholders of the company to clarify the state of the company's finances.
The Companies (Amendment) Act, 2017 states that auditors can be appointed for a term of five years, and are not required to confirm their appointment at each year's AGM. This forces companies to find and contract a new auditor every year. Can help in reducing the burden.
Only an independent chartered accountant or a firm of chartered accountants can be appointed as the auditor of the company.
audit reporting
Audits are conducted to convey a true verified view or description of the financial statements of a company. Therefore, the auditor's conclusions stated in the final report are based on the information reviewed and analyzed during the examination of the financial statements.After completing the report, the auditor may express one of the following four opinions:
unqualified opinion
When an independent auditor's findings show that a company's financial records and statements are in order – meaning that they are presented fairly and appropriately in accordance with the financial reporting framework, the judgment is called an unqualified opinion.
An unqualified opinion is important because it indicates the following factors:
Generally accepted accounting principles are consistently followed in the preparation of financial statements;
The financial statements comply with all relevant legal requirements and regulations;
there is adequate disclosure of all factors relevant to the fair presentation of financial information;
qualified opinion
A qualified opinion is when an auditor expresses what, to him, the company's financial statements are free from material misstatements and misstatements, but are not comprehensive in nature.
importance
Information is a misstatement when such misstatement could affect the judgments of users of financial statements. This type of audit is important because it is used to establish cases in which there are misstatements in the financial reports.Details are included. The effect of misstatement is said to be widespread when such misstatement is not limited to one part of the statement, account or item of the financial statements and reflects the widespread effect of the misstatement of information.
Disclaimer of opinion
A disclaimer of opinion is one that is expressed when the potential effect of a limitation on the scope is material and pervasive when it occurs that the auditor is unable to obtain sufficient appropriate audit evidence.
Importance:
This type of audit is important because it is used in cases where the auditor is unable to express a definite opinion on the financial statements. Never the less, he says, there are misappropriations; It's just that he can't prove them to a certain degree.
adverse opinion
An adverse opinion arises when there are limitations on the scope or extent of the auditor's work.
It also occurs when there is disagreement with the company's management about the acceptability of the accounting policies chosen, the style of their application, or the adequacy of financial statement disclosures.
Importance:
Sometimes an auditor gives an adverse opinion because it is not necessary to implicate the company's management. This is especially true in cases where a new management has recently taken the reins of the company, and a different auditing system was previously used. However, The audit report statement includes a clear description of all root causes.
As stated earlier in this article, the provision of audited financial statements is a matter of law. However, the law recognizes the fact that contracting an auditor can involve significant financial implications, not to mention workload and manpower. Talking about needs. For this reason, smaller companies are excluded from this requirement, meaning that the law ensures that larger companies with significant value in stock holdings, and in turn are the main targets for auditing requirements, as is India's Company Law. Act, 2013. So which companies are called large companies in the context of Indian law?
The Companies Act, 2013 of India states that the following companies must have an internal audit system.
Every company whose shares are traded on a stock exchange.
Companies whose shares are not listed on a stock exchange, but which have the following:
Registered capital of ₹500 million (US$6.7 million) or more during the previous financial year;
Recorded a turnover of Rs 2 billion (US$26.9 million) or more during the previous financial year;
Loans or credit facilities from banks or public financial institutions amounting to Rs 1 billion (US$13.4 million) or more in the current year or outstanding at any time during the previous financial year; Or
Cash deposits of Rs 250 million (US$3.3 million) or more in any financial institution at any time during the previous financial year.
With every private company:
Every company with a turnover of Rs 2 billion (US$26.9 million) or more during the previous financial year; Or
Outstanding loans or credit facilities from banks or public financial institutions exceeding Rs 1 billion (US$13.4 million) at any time currently or during the previous financial year.
The statutory auditor of the company has to give a statement on the internal audit system of the company in the annual audit report.
This is audit and audit reporting in India.
