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STATUTORY / TAX AUDIT

Tax Audit

In case the turnover of the taxpayer (irrespective of its category) is equal to or more than Rs. 1 Crore from the business or Rs. 50 Lac from the income from profession then as per The Income Tax Act, 1961 an audit known as Tax Audit by a practicing-chartered accountant (CA) is required to be done under section 44AB. The tax audit report must be filed online at the income tax portal before 30th September of the assessment year.

Statutory Audit

Statutory Audit is an audit which is prescribed by the different statute like Reserve Bank of India, Income Tax, Companies Act, etc. A Chartered Accountant need to conduct many audits as per the different statute requirement.
Statutory Audit of banks is mandatory. Statutory Auditors are appointed by RBI in association with the ICAI. Every year after the end of the previous financial year, in every branch of the banks, a very rigorous audit is conducted.


STATUTARY AUDIT


What Is a Statutory Audit?


A statutory audit is a legally required review of the accuracy of a company's or government's financial statements and records. The purpose of a statutory audit is to determine whether an organization provides a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records, and financial transactions

KEY TAKEAWAYS


A statutory audit is a legally required review of the accuracy of a company's or government's financial statements and records.
An audit is an examination of records held by an organization, business, government entity, or individual, which involves the analysis of financial records or other areas.
The purpose of a financial audit is often to determine if funds were handled properly and that all required records and filings are accurate.

How Statutory Audits Work


The term statutory denotes that the audit is required by statute. A statute is a law or regulation enacted by the legislative branch of the organization’s associated government. Statutes can be enacted at multiple levels including federal, state, or municipal. In business, a statute also refers to any rule set by the organization’s leadership team or board of directors.

How Statutory Audits Work


The purpose of a financial audit is often to determine if funds were handled properly and that all required records and filings are accurate. At the beginning of an audit, the auditing entity makes known what records will be required as part of the examination. The information is gathered and supplied as requested, allowing the auditors to perform their analysis. If inaccuracies are found, appropriate consequences may apply.

The following benefits are offered by a Statutory Audit


1. It assures the management that their duties in statutory performed perfectly.
2. Statutory audit improves the reliability of the published financial statement
3. It provides internal control’s efficiency.
4. The statutory audit ensures the management that they have to abide by non-statutory requirement say Corporate Governance requirement.

Applicablity of Statutary Audit


Statutory Audit Individual/HUF/Partnership Firm: No Statutory Audit Applicable. LLP: Statutory Audit is Applicable only if turnover in any financial year exceeds Rs. 40 Lakhs or its contribution exceeds Rs. 25 Lakhs. Private Limited Company/Public Limited Company: Mandatory irrespective of Turnover, Profit, etc. Even in company is incurring loss; statutory audit is required to be conducted.



TAX AUDIT


What is Tax Audit?


The dictionary meaning of the term "audit" is check, review, inspection, etc. There are various types of audits prescribed under different laws like company law requires a company audit, cost accounting law requires a cost audit, etc. The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law.

Objectives of Tax Audit


One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they truly reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices.

Objectives of Tax Audit


It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched for or not. The time of the Assessing Officers saved could be utilised for attending to more important and investigational aspects of a case.





Tax Audit Report Forms


FORM NO. 3CA


The tax audit report needs to be prepared as per prescribed form 3CA in case the assessee is also required to get its books of accounts audited under any other law. For instance, in cases of the company, every company is required to get the books audited under the companies act, 2013.

FORM NO. 3CB


In case the assessee /taxpayer is not required to get it's books of the account audited under any law then the tax audit report need to be prepared as per prescribed form 3CB. For instance, in case of a salaried individual or firms, if their income is more than Rs. 1 crore.

FORM NO. 3CA


Form 3CD is an annexure to form 3CA or 3CB as the case may be. The tax auditor is required to fill particulars of the taxpayer for which tax audit was conducted. The form 3CD is in the form of an information memorandum and forms part of the audit report u/s. 44AB.



Audit under Various Acts


Audit under Companies Act


Every company registered in India under the companies act, 2013 is required to get its books of account audited irrespective of its turnover. This kind of audit is a thorough checking of the books of account, the vouchers and supporting documents so that the auditor can express their opinion as required under the law.

Audit Under LLP Act


Under LLP act, 2008 only those LLP is required to get their books audited where the contribution/capital of the LLP is equal to or more than 25 lac or where the turnover of the LLP has reached or crossed Rs. 40 lac. The scope of the audit is similar to company audit, and it also is known as the statutory audit for LLP.

Audit Under GST


The new law of The goods and services tax act imposes a universal audit on all persons registered under GST act in case the turnover of the taxpayer is equal to or more than one crores. This audit is a detailed reconciliation report prepared and certified by a practicing chartered accountant concerning the GST Act.



Who is Compulsory required to get his Accounts Audited;
who is covered by Tax Audit?

As per section 44AB, following persons are compulsorily required to get their accounts audited :
• A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is not applicable to the person, who opts for presumptive taxation scheme under section 44AD and his total sales or turnover doesn't exceeds Rs. 2 crores.
Note: w.e.f. Assessment Year 2020-21, the threshold limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 5 crore in case when cash receipt and payment made during the year does not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of the business transactions should be done through banking channels.
• A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.
• An assessee who declare profit for any previous year in accordance with section 44AD and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit compused as per section 44AD and his income exceeds the amount which is not chargeable to tax.
• If an eligible assessee opts out of the presumptive taxation scheme, within the aforesaid period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.
(*) For provisions of section 44AD refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
• A person who is eligible to opt for the presumptive taxation scheme of section 44ADA (*) but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.
• A This provision is not applicable to the person, who opts for presumptive taxation scheme under section 44AD and his total sales or turnover doesnot excceeds Rs. 2 crores.
(*) For provision of section 44ADA, refer tutorial on “Tax on presumptive basis in case of certain eligible business”
• A person who is eligible to opt for the presumptive taxation scheme of sections 44AE (*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AE.
(*) For provisions of sections 44AE refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
• A person who is eligible to opt for the taxation scheme prescribed under section 44BB (*) or section 44BBB (*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
(*) section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in exploration of mineral oils. section 44BBB is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project.