Today’s chosen theme: Understanding the Basics of Business Audits in India. Step into a clear, friendly guide that demystifies audits, Indian regulations, and practical steps so you can approach your next audit with calm confidence and curiosity.
Companies Act and Statutory Audits
Most companies are required to have statutory audits under the Companies Act, 2013. Auditors issue opinions on financial statements, with additional reporting under CARO for specified entities, strengthening transparency for creditors and shareholders.
Income-tax Act and Tax Audits
Tax audits under the Income-tax Act apply when turnover or receipts cross prescribed thresholds. The objective is to verify books, deductions, and compliances, helping taxpayers reduce disputes and align with evolving revenue department expectations.
Types of Audits You Should Know
Statutory vs. Internal Audits
Statutory audits focus on the fairness of financial statements, while internal audits evaluate processes, controls, and risks throughout the year. Many growing Indian companies use both to strengthen governance and operational discipline.
Tax and Compliance-Focused Audits
Tax audits verify compliance with income tax rules, while specific compliance reviews look at areas like TDS, GST reconciliations, and payroll. These engagements reduce penalties, rectify gaps, and provide documentation clarity before assessments.
Specialized Audits: Secretarial and Cost
Secretarial audits examine compliance with corporate laws for specified entities, and cost audits apply to select industries. These specialized reviews protect stakeholders by ensuring legal adherence and efficiency in cost records and reporting.
The Audit Journey: From Planning to Report
Auditors begin by understanding your business, industry risks, and internal controls to set materiality. This shapes the scope, focusing procedures on areas where errors or fraud could meaningfully impact users of the financial statements.
The Audit Journey: From Planning to Report
Fieldwork includes walkthroughs, sampling, reconciliations, and third-party confirmations. Evidence is gathered around revenue, purchases, inventory, and payroll, with emphasis on documented controls, system logs, and consistent approval workflows.
Late postings, unbilled revenue, or premature recognition often surface. Clear policies, periodic reconciliations, and review checkpoints aligned to contract terms prevent misstatements and build confidence in topline figures.
Common Findings and How to Fix Them
Differences between physical stock and books arise from counting errors, returns, or valuation issues. Cycle counts, barcode controls, and standard costing reviews help correct problems before they snowball into material misstatements.
