Company audits in India are often smeared with a bad reputation for being too complex and convoluted. We are here to tell you that the auditing process is not that difficult to understand and follow. In this article, we will simplify the procedure for you.
So, what is company auditing? A business audit is basically a deep-dive into a company’s financial statements, including income statements, cash flow statements, and balance sheets. A company audit is a tool for investors and regulators to assess a business’s financial reporting accuracy.
- Types of Audits Undertaken in India
- Tax Audit
Tax audits are for those companies which earn more than 5 crore per year or have business transactions exceeding 50 lakh per year. Such tax audits have to be undertaken by chattered accountant/s (CA).
Tax audits are critical. As a business owner, successfully completing tax audits ensures that your business is in compliance with taxation laws. Moreover, it makes filing taxes easier for you.
As a mandate, tax audits need to be filed before the 31st October of succeeding fiscal year.
- Company Audit
Company audits are undertaken so a business can have its financial documents audited at the end of every fiscal year. An auditor needs to be appointed in order to conduct company audits in India.
The Company’s Amendment Act, 2017 allows you to appoint an auditor for the next 5 years (which makes a term). However, you cannot appoint the same auditor for more than two terms. Essentially, your company needs to appoint a different auditor every 10 years.
A governmental Chartered Accountant can also act as an auditor. However, some individuals are pre-emptively disqualified from taking charge as a company auditor. They are:
- The business owner
- Any employee of the organization
- A stakeholder of the company who is also a partner
- A person who took care of the company’s security
- Any person who has provided capital funds or monetary assistance to the company in any form
- Audit Procedure
A company audit is divided into two parts: an internal audit and an external audit. An internal audit is conducted if management decides that it is necessary. There can be numerous reasons for this, including checking the company’s regulatory health and operational feasibility.
But when a business goes for an external audit, things are much more formal and streamlined.
- Financial Documents Are Requested
The auditor will intimate the company that an audit is impending upon them. Upon receiving notice, the company must furnish the financial statements, stakeholder reports, and copies of regulatory rules that the company follows / claims to follow.
- Preparing a final audit plan
The appointed auditor prepares the final audit plan for the company and conducts audit based on the plan
The issues uncovered in the above steps are reported to the higher authorities. Details of the issues are elaborated in detail when reporting to the seniors. The auditor also provides their own suggestions on handling these issues.
- Concluding meeting
The ladder has now been climbed step by step. At this stage, the auditor finally meets with the company head to discuss the flags raised and completes the audit after incorporating changes required in the books or adds notes/qualifications to the audit report
- What is an auditor looking at?
An auditor will look at key processes in the company to expose deficiencies and threats of non-compliance. This includes:
- Purchase and inventory operations
- Chargeability for raw materials acquired
- Mapping of purchase items with tax returns
- Manufacturing / production process,
- Mapping of billing and expenditure to tax expense
Based on company structure and industry, certain other factors can be considered.
- Other considerations
You can make the business audit process much smoother with transparency and handiness. By keeping all the documents and statements ready, you can expedite the process significantly.
While appearing for an audit, follow all the guidelines and procedure elaborated above to avoid getting fined by the government authorities.
- Need assistance with company audits?
Remunance provides Accounting and Tax services that can streamline your bookkeeping and help your business become 100% compliant. By aligning to company and taxation laws, you become much more eligible to pass company audits without any hassles.