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What is Audit?
Audit means to check, to inspect something. Here, in our context, it means examination of financial records or statements of an organization to check whether they have prepared in accordance with prescribed laws, rules and guidelines. Audit can be conducted by internal employees or experts and by external experts. Some audits such as financial audit, secretarial audit have specially been prescribed to be conducted by external experts, whereas internal audit, stock audit and labour audit can be conducted by internal staffs and employees as well. There are various laws, under which, audit is prescribed to be conducted. Based on segment of records or departments or activities, naming of audit is done. When we say, financial audit, it means audit of financial records and statements, when we say labour audit, it means audit of overall policy and activities of organization as per prescribed labour laws and regulation. When audit is conducted by external parties, it acquires more value and reliability. And government, banks and other stakeholders base them for taking decisions with relation to framing policies or doing transaction with that company or organization.
TYPES OF AUDIT:
1. Financial Audit
Financial Audit means audit of financial
statements or records of company or organisation. Financial Audit is optional
in case of Proprietorship firm and Partnership firm in India. In case of LLP,
Audit is not required till Rs. 40 lakhs annual turnover, whereas Financial
Audit is compulsory in case of Companies (Private, Public, or others).
Financial Audit is also known as “Statutory Audit” as it is required by laws in case of companies, to be done on mandatory basis.
2. Secretarial Audit
Audit is audit of compliance of various legislations and laws applicable to
company including but not limited to company act, labour laws, environmental
laws and economic laws etc. The right to do Secretarial Audit is reserved
for/to “Company Secretary in Whole time practice” only, who is also known as
Secretarial Auditor expresses an opinion as to check whether there exist system or process in the company commensurate with size of company to ensure compliance with applicable laws, rules, regulations and guidelines.
3. Labour Audit
Labour audit like financial audit is check of activities, policies and procedures of company to find out, whether company has complied with applicable labour laws and regulations. Labour audit is also termed as “Labour Law Compliance Audit”. Labour Audit is an effective tool to ensure that the company is following all applicable labour laws and is not in default.
Labour audit is not compulsory in all states in India, but it is highly recommendatory to conduct this audit. Audit helps to detect non-compliance of labour and employment laws applicable to a business and to take corrective action to avoid any unwarranted legal actions by regulatory bodies against the business.
Labour Audit can be conducted by a Company Secretary or Lawyer (External) or employees (internal) of company.
3. Stock Audit
is termed used to signify audit of inventory or stock. Stock audit refers to
physical verification of inventory or stock of godown/shop/showroom or of a
company as whole itself.
Why stock audit is conducted:
- To identify the slow moving, fast moving stock, dead stock, obsolete stock etc.
- To find out differences and discrepancy between book stocks and physical stocks
- To update the physical stock that matches book stock
- To ensure proper handling, storage and preservation of stocks.
Benefits of Stock Audit:
- To prevent pilferage and fraud
- To reduce stock wastages
- To detect theft of stocks
- To reduce stock cost
- To reduce gap in the inventory management process
4. Concurrent Audit
Concurrent Audit means Audit conducted on regular basis of financial statements to ensure accuracy, authenticity and compliance with procedures and guidelines. While Financial audit is conducted at end of year after occurrence of transactions, concurrent audit is conducted alongwith transaction or near to date of transaction. It attempts to shorten the interval between a transaction and its examination by independent person. In Concurrent Audit, focus is to do substantive checking in key areas rather than test checking.
Objective of Concurrent audit:
The main objective of concurrent audit is to bring any violation of procedure into light and to ascertain whether transactions are cross checked by competent authority, expenses are incurred after getting approval of competent authority and to ensure books of accounts are maintained in according with companies’ prescribed system and policies.
5. Bank Audit
Bank audit means audit of financial statements
and activities of Banks. It covers Statutory Audit, Internal Audit and
Concurrent Audit. Statutory Audit is audit of financial statements and
transactions of Bank as end of year i.e., after occurrence of transactions.
Whereas Internal Audit is conducted at regular interval and Concurrent Audit is
conducted simultaneously along with or near to occurrence of transactions.
Internal audit can be conducted by employees or expert external to organisation whereas Concurrent audit and Statutory audit can only be done a Chartered Accountant in Whole-time practise.
6. Tax Audit
Income Tax Act also mandates an audit called “Tax audit” in India. Tax Audit is an examination of books of accounts of organisation from an income tax point of view.
Tax audit has to be conducted when business has annual turnover of Rs. 1 crore or more and in case of Self Employed Professionals, when gross annual receipts exceeds Rs. 50 lakhs in a year.
Tax Audit can only be conducted by a Chartered Accountant in wholetime practice in India. Tax auditor (CA in this case) shall furnish his tax audit report in prescribed form which could be either Form 3CA or 3CB, where:
- Form 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law of land,
- Form 3CB is furnished when a person carrying on business or profession is not required to get his accounts audited under any other law of land.
7. GST Audit
GST audit will apply to all GST
dealer/business having turnover of more than Rs. 2 crores per year. Turnover
would include supply of goods and services both. While calculating turnover for
GST audit, revenue from supply of goods and services of all branches of company
would have to be grossed up together.
Gst Audit involves examination of records, returns and other documents maintained by GST registered person. It also ensures correctness of turnover declared, taxes paid, refund claimed, input tax credit claimed etc.
GST audit can only be conducted by a Chartered Accountant or a Cost Accountant holding a valid certificate of practice.
8. Internal Audit
Internal audit is checking of transactions, processes and procedures of an organisation as per established rules and guidelines of the organisation. Internal audit is internal affairs of an organisation. It is done as a self-check on correction of processes and procedures being followed by the organisation.
Internal Audit is a department or an group of people within a company that is tasked with providing unbiased, independent reviews of systems, business organisations and processes.
Internal Audit is conducted to provide independent assurance that organisation’s risk management, governance, and internal control processes are operating effectively.
The objective of internal audit is to identify weaknesses within the organisation’s processes and control environment internally so that they can be fixed as quickly as possible to prevent harm to the organisation or its stakeholders.
9. Cost Audit
Cost audit is examination of correctness of cost accounts and to check, cost accounting principles and rules have been properly followed. CIMA, London defines “Cost Audit” as “the verification of cost accounts and a check on the adherence to the cost accounting plan”.
comprises of following:
i. Verification of the cost accounting records such as the accuracy of the cost accounts, cost reports, cost statements, cost data and costing techniques and
ii. Examination of these records to ensure that they adhere to the cost accounting principles, plans, procedures and objective.
Cost audit can only be conducted by a member of Cost and Management accountant of India holding valid certificate of Practice.
10. NGO Audit
NGO Audit is independent examination of financial statements, transaction and records of Non-Governmental Organisations. NGO or NPOs are organisation who undertakes social welfare activities and can take donation from public, therefore, Audit of NGO acquires a great importance to establish accountability of NGO. NGO audit helps in finding NGOs are using its resources for fulfilment of its objectives and there is no fraud or mishandling of NGO resources.
11. Company Audit
Companies are organisations registered as per provisions of Company Act, 2013. Company act, mandates all companies registered to get its accounts audited every year. Thus, Audit of Company is done at end of each financial year, after occurrence of transactions. Company Audit helps stakeholders in building faith on reliability of accounting records and transactions of the company. Where it helps investor in knowing financial viability of company on one hand, it helps regulatory bodies in ascertaining that company is paying correct amount of taxes etc.
12. Firm Audit
Firm Audit means audit of accounting records and transactions of proprietorship firm and partnership firm. Though, its not mandatory to get accounts of firms audit, but its advisable and recommended to get accounts of firm audited every year. Firm audit helps in following way:
- It helps in finding out correct amount of profit and tax liability
- It helps firm in getting loan
- It helps in creating trust of stakeholders on financial viability of firm
- It helps in detection of fraud and misappropriation of funds and resources of firms etc.