Common Audit Mistakes to Avoid in India

Chosen theme: Common Audit Mistakes to Avoid in India. A friendly, field-tested guide for auditors, finance leaders, and founders who want cleaner audits, fewer surprises, and more trust. Join the conversation, share your experiences, and subscribe for practical checklists grounded in Indian regulations and real-world stories.

Plan Relentlessly: Materiality, Risk, and Realistic Timelines

Treat SA 315 as a living process, not paperwork. Brainstorm fraud scenarios under SA 240, challenge business model assumptions, and prioritize processes where errors actually hurt. A Bengaluru startup once cut hours by 30% after mapping revenue streams properly and scrapping irrelevant testing.

Plan Relentlessly: Materiality, Risk, and Realistic Timelines

Avoid setting materiality solely on a percentage. Consider debt covenants, regulatory lenses, and qualitative triggers that amplify small numbers. One listed client avoided a potential qualification when auditors lowered performance materiality for a volatile quarter and caught a subtle covenant breach early.

Document Like a Pro: Evidence, Cross-Referencing, and Review

Capture purpose, procedures, results, and conclusions on every significant area. Highlight judgments, exceptions, and how you resolved them. Keep retention in line with firm policy and law. When a review partner can understand your work without a call, you’re documenting at the right level.

Companies Act, CARO 2020, and IFC Reporting Pitfalls

CARO 2020: More Than a Boilerplate

Teams often gloss over statutory dues ageing, undisclosed income, or benami property disclosures. Confirm management representations with corroborative evidence, not just emails. One mid-cap company avoided a public embarrassment when auditors independently reconciled indirect tax litigations and flagged missing appeal acknowledgments.

Internal Financial Controls: Walkthroughs and Testing

IFC testing fails when walkthroughs are superficial. Trace one transaction end-to-end, identify key controls, and test operating effectiveness over a period. A Noida team reduced control deficiencies by aligning control descriptions with actual system behavior rather than template narratives.

Regulatory Alignment and Filings

Ensure AOC-4, MGT-7, and board reports reflect audited numbers and disclosures. Cross-check auditor’s report references, CARO paragraphs, and notes to accounts. A small mismatch once triggered unnecessary queries; a simple pre-filing tie-out checklist would have prevented avoidable correspondence.

Revenue, Inventory, and Other Sensitive Balances

Under Ind AS 115 (or AS 9), verify performance obligations, shipping terms, and variable consideration. Sample near year-end aggressively and reconcile dispatches with e-waybills and delivery proofs. A SaaS client in Gurugram avoided a revenue pull-forward by clarifying when control truly transferred.

Revenue, Inventory, and Other Sensitive Balances

SA 501 expects presence or effective alternative procedures. Test count sheets, tags, and movements. Validate NRV with current price lists and post-year-end sales. One retailer found slow-moving stock disguised as promotional items; reclassification improved transparency and purchasing decisions immediately.

Revenue, Inventory, and Other Sensitive Balances

Probe assumptions behind ECL, warranty provisions, gratuity valuations, and useful lives (SA 540). Compare prior estimates to outcomes to gauge bias. A Hyderabad company strengthened governance by documenting how macroeconomic shifts informed ECL overlays rather than relying on last year’s percentages.

Tax Audit, TDS, and GST Reconciliations That Trip Teams

Ensure depreciation, related party disclosures, and disallowances match the books and notes. Map each 3CD clause to audited schedules. One firm cut last-week chaos by maintaining a live 3CD tracker tied to the trial balance with automated variance flags.

Tax Audit, TDS, and GST Reconciliations That Trip Teams

Reconcile expenses with 26AS, AIS, and TRACES reports. Test timing of deposits and returns to quantify interest risks. A Kochi client prevented a significant exposure by identifying a vendor classification error early, reclassifying payments, and correcting challans before scrutiny.

Independence, Ethics, and Related Party Traps

Map non-audit services to Section 144 prohibitions, consider rotation rules, and assess threats under the ICAI Code of Ethics. A firm avoided a last-minute conflict by maintaining a client service inventory reviewed before every proposal and engagement letter.

Don’t rely solely on management lists. Cross-check with MCA filings, board minutes, and vendor masters (SA 550). Test pricing for arm’s length indicators and approvals under Section 188. One finance team uncovered an overlooked subsidiary transaction through a payment term variance review.

Use SA 260 to elevate significant risks, corrected and uncorrected misstatements, and independence confirmations. Written representations under SA 580 should complement, not replace, evidence. Invite audit committee feedback early—it builds trust and reduces tense year-end negotiations.