Overview
It is the examination or inspection of various books of accounts by an auditor followed by
physical checking of inventory to make sure that all departments are following documented
system of recording transaction. It is done to ascertain the accuracy of financial statements
provided by the organisation.
Types of Audit
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Internal Audit
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External Audit
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IRS Tax Audit
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Financial Audit
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Operational Audit
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Compliance Audit
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Information system Audit
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Payroll Audit
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Pay Audit
Three ways to conduct Audit
One – side Audits
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The number of days needed for an audit depends on several factors like size, complexity, risk
and nature of business.
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The International Accreditation Forum (IAF) has provided guidelines for registrar to calculate
audit time.
Remote Audits
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It may be performed via web meetings, teleconferencing or electronic verification of
processes.
Self – Audits
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It can be requested of your customer to eliminate the need for them to use their resources
and still offer some assurance that you are meeting requirements.
Tax Audit Limit
Business
-
Business not opting for
presumptive taxation scheme
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Business eligible for
presumptive taxation under
Section 44AE, 44BB, or 44BBB
-
Business eligible for
presumptive taxation under
sec 44AD
-
Business not eligible to claim
presumptive taxation under
sec 44AD due to opting out
for presumptive taxation in
any one financial year of the
lock – in period
-
Business which is declaring
profits as per presumptive
taxation under sec 44AD
Profession
-
Profession eligible for
presumptive taxation under
sec 44ADA
Business Loss
-
Loss carrying on business and
not opting for presumptive
taxation scheme
-
Total income exceeds basic
threshold limit but he has
incurred loss from carrying on
a business (not opting for
presumptive taxation
scheme)
-
Business (opting for
presumptive taxation scheme
under sec 44AD) having a
business loss but with income
below basic threshold limit
-
Business (presumptive
taxation scheme under sec
44AD applicable) having a
business loss but with income
exceeding basic threshold
limit)
List of Books and Accounts to be Maintained
Books of Accounts must be maintained by all Professions and Business if they cross the
threshold specified under Income Tax Act.
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A Cash Book (Records of all cash receipts, payments, kept and maintain from day to day
giving cash balance in hand each day or at the end of a specified period not exceeding a
month).
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A journal, if an assessee follows the mercantile system of Accounting.
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A general ledger.
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Carbon copies of bills exceeding Rs. 25 issued by the person.
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Original Bills / receipts issued to assessee in respect of expenditure (payment vouchers if
bills/ receipts not issued and amount of expenditure does not exceeds Rs. 50).
In addition to above, if a person engaged in medical profession (i.e. , a practitioner of any
system of medicine – physicians, surgeons, dentists, pathologists, radiologists, hakim and so
on) maintain following terms:
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A daily case register in prescribed form, showing date, patient’s name, nature of
professional services rendered fees received and date of receipt.
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Inventory mechanism classified under general heads, as on first and last day of the
previous year, of the stock of drugs, medicines, and other consumable accessories used
for purpose of medical profession.
List of Books and Accounts to be Maintained
Any taxpayer who is required to get the tax audit done but fails to do so, the least of the
following may be levied as a penalty:
1. 0.5% of the total sales, turnover or gross receipts.
2. Rs. 150000.
