Auditing Services in India and Auditor Services in Delhi
An audit is an independent examination of financial information of an entity, whether profit-oriented or not, irrespective of its size or legal form.
In India, the practice of auditing has evolved significantly over the years due to increased corporate governance demands, regulatory scrutiny, and global business practices. The audit process plays an important role in ensuring transparency, accountability, and accuracy in financial reporting.
Types of Audits in India
1. Statutory Audit
The said audit is mandated by law under the Companies Act, 2013, a statutory audit is required for all companies registered in India. It is performed to ensure that financial statements present a true and fair view of the company’s financial position.
- Who conducts it? Chartered Accountants (CAs) in practice.
- Applicability: All companies, including private limited, public limited, and one-person companies, subject to certain thresholds.
2. Tax Audit
Prescribed under Section 44AB of the Income Tax Act, 1961, tax audits are mandatory for businesses and professionals exceeding specified turnover thresholds.
- Threshold: ₹1 crore for businesses and ₹75 lakh for professionals (as of recent updates, subject to changes).
- Objective: To ensure accurate income reporting and compliance with income tax laws.
3. Internal Audit
An internal audit is an independent, objective assurance activity designed to add value and improve operations within an organization. It is mandated for certain classes of companies under Section 138 of the Companies Act, 2013.
- Applicability: Based on criteria like turnover, paid-up capital, or borrowings.
- Focus: Risk management, control, and governance processes.
4. Cost Audit
Required under Section 148 of the Companies Act, 2013, for certain manufacturing companies, this audit examines cost accounting records.
- Conducted by: Cost Accountants.
- Purpose: Ensuring that cost records are maintained accurately and comply with cost accounting standards.
5. Management Audit
A non-statutory audit focused on assessing managerial functions and efficiency. It helps top management improve strategic decision-making.
6. Forensic Audit
A specialized audit to investigate fraud, embezzlement, or financial crime. It involves deep analysis of financial records to detect anomalies.
Regulatory Framework
Key Authorities Governing Audits in India:
- Institute of Chartered Accountants of India (ICAI): Regulates the profession of Chartered Accountants and issues auditing standards.
- Ministry of Corporate Affairs (MCA): Administers the Companies Act and oversees corporate compliance.
- Comptroller and Auditor General (CAG) of India: Audits government departments and public sector enterprises.
- National Financial Reporting Authority (NFRA): Oversees auditing standards and enforces compliance in listed and large unlisted companies.
Auditing Standards in India
India follows Standards on Auditing (SAs) issued by ICAI, which are largely aligned with International Standards on Auditing (ISAs). These standards provide guidelines on planning, execution, documentation, and reporting in audits.
Challenges in the Indian Audit Landscape
- Complex regulatory environment
- Audit independence issues
- Quality control concerns
- Technology integration
- Rising instances of corporate fraud
Recent Developments
- NFRA’s increasing role in oversight and disciplinary actions.
- Mandatory audit firm rotation for listed companies to ensure independence.
- Use of technology such as data analytics and AI in audits.
- Amendments to Companies Act to strengthen audit disclosures and responsibilities.
How to Conduct Statutory Audit in India?
1. Appointment of Auditor
Under Section 139 of the Companies Act, 2013:
- First Auditor (for a new company): Appointed by the Board within 30 days of incorporation.
- Subsequent Auditors: Appointed by shareholders at the AGM for a term of 5 years, subject to ratification (now optional).
- Only a Chartered Accountant (CA) or a CA firm can be appointed.
2. Audit Planning
Planning is critical to understand the business, assess risk, and allocate resources.
Activities:
- Understand the client’s business model, internal controls, and accounting systems.
- Define scope and objectives of the audit.
- Identify key areas of risk.
- Prepare an audit plan and allocate responsibilities.
Tools:
- Audit engagement letter
- Previous year’s audit reports
- Financial statements and trial balance
3. Risk Assessment and Internal Control Evaluation
Assess:
- Entity-level controls
- Process-level controls
- Fraud risk indicators
- IT systems and general controls
Documentation:
- Internal control questionnaires
- Risk control matrices
- Walkthroughs and test of controls
4. Substantive Audit Procedures
This involves detailed examination of financial records to verify the accuracy and completeness of financial statements.
Key Areas to Audit:
- Revenue and receivables
- Purchases and payables
- Fixed assets
- Loans and advances
- Bank transactions and reconciliations
- Provisions and contingencies
- Statutory dues (GST, TDS, PF, etc.)
Techniques:
- Vouching and verification
- Reconciliation
- Analytical procedures
- External confirmations (e.g., from banks, debtors, creditors)
5. Compliance Checks
Ensure compliance with:
- Companies Act, 2013
- Accounting Standards (AS or Ind AS)
- Income Tax Act
- GST laws
- RBI, SEBI regulations (if applicable)
6. Audit Documentation
Proper documentation is essential to support audit findings.
Includes:
- Audit working papers
- Checklists and schedules
- Notes on discussions with management
- Sample testing results
As per SA 230 – Audit Documentation, the auditor must maintain audit records that are sufficient to enable an experienced auditor to understand the nature, timing, and extent of audit procedures performed.
7. Audit Reporting
Prepare the Audit Report as per SA 700 and other relevant standards.
Report should include:
- Auditor’s opinion (unqualified, qualified, adverse, or disclaimer)
- Compliance with accounting standards
- Observations on internal control weaknesses
- Report under CARO 2020 (if applicable)
Filing:
- Submit audit report with the company.
- Company must file Form AOC-4 (financial statements) and Form MGT-7 (annual return) with MCA.
8. Communication with Management and Those Charged with Governance
As per SA 260 and SA 265, communicate:
- Significant audit findings
- Internal control deficiencies
- Disagreements with management
- Instances of fraud (if any)
9. Audit Completion and File Closure
Once the audit is complete:
- Review the entire working paper file
- Cross-check compliance with all standards
- Obtain final sign-offs from audit team and partner
- Archive the audit file (retention typically 7–10 years)
Common Tools and Software Used
- Tally / SAP / Oracle for accounting data
- CAATs (Computer-Assisted Audit Techniques)
- Excel / Power BI for analytics
- Audit management software (e.g., CaseWare, IDEA)
Penalties for Non-Compliance
- Auditor: Penalties for failure to report fraud or misconduct
- Company: Penalties for not appointing auditors or filing audit reports
A statutory audit is more than a compliance requirement – it’s a crucial assurance mechanism for stakeholders. CAs must follow ethical guidelines and audit standards rigorously to maintain audit quality and independence.
Auditing in India has become increasingly important in the wake of financial scandals and growing investor awareness. A robust audit framework helps build trust in financial reporting and promotes better corporate governance. As the Indian economy grows and integrates further with the global market, the role of auditors will become even more pivotal in ensuring financial integrity.
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