INTRODUCTION Statutory Audit A legally required review of the accuracy of a company's or government's financial records.

The purpose of a statutory audit is the same as the purpose of any other audit - to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions. For example, a state law may require all municipalities to submit to an annual statutory audit examining all accounts and financial transactions and to make the results of the audit available to the public. The purpose of such an audit is to hold the government accountable for how it is spending taxpayers' money. The principal objectives of the Statutory Audit is to ensure that the financial statements i.e. the Balance Sheet, Profit & Loss Account and Schedules forming part of Balance sheet and Profit/ Loss account, give a true & fair view and are free from any material misstatements. We ensure that the financial statements are drawn up with proper presentation and disclosure requirements as per the applicable laws. We also ensure that the auditee has fulfilled all the legal compliances. Under various statutes the business or entities have to get accounts audited. We carry out the same under different statutes; Companies Act, 1956 Income Tax Act, 1961 MVAT Act, 2002 Banking Regulation Act, 1949 Electricity Supply Act, 1948 Co Operative Societies Act, 1960 Various Religious & Endowment Acts Non Profit organizations

Our chief objective of Statutory Audit lies in ensuring the reliability and accuracy of the financial statements on the basis of which the state of affairs may be made easy to understand. Statutory Audit The term statutory audit refers to the review or the record of the company of the government organization which is required by the law or the municipal authority of any particular region. This is done to monitor the performance of the firm or the government organization. The company here the auditors who provide the auditing report and submit those reports annually or semiannually to the law or the concerned municipal law authority. This statutory auditing finally does the cross checking of the financial reports which are provided by the companies. They do cross checking by gathering the transaction information from the companys bank and also from other various sources. This statutory auditing is done for the government own companies. The law firm responsible for making this statutory auditing requires all the municipalities which are performed by that government organization. The authority examines all the financial transactions and account balances which contributes in making the final report by the statutory auditing information. Generally these are prepared for the general public. They show how the tax collection is spent and on what things they have invested along with the amount of the investment done on each project or program. These reports will help everyone to know the overall performance of the government and nothings become under the veil. The report is prepared by various methods, almost every law authority who prepare a statutory report opts some different ways. When preparing the annual statutory auditing report, here the GAAP (Generally Accepted Accounting Principles) are not followed. The entire scope and the performance of the government organization is explained under this report. The statutory auditors become elected when the board of directors vote them, those auditor before being elected to this job must have some top position in the hierarchy level of that government organization. Statutory Audit is an checking of accounts required by law. A municipality may be required by its own law to have an annual audit of financial records or a company which is governed by any Law, the Law may require the audit to be conducted and the manner in which audit should be conducted and to whom the report of auditors should be presented.

like in case of companies the Companies Act requires audit of accounts, its reporting and manner of audit report. One conducted to meet the particular requirements of a governmental agency. Where such audits take place, the scope and audit programs are set by the governmental body. Banks, insurance companies, and brokerage firms have statutory audits. Since the auditor's report must conform to standards required by the governing agency, the statements and other financial data generated from these audits may not conform to Gaap. Statutory auditors are elected by shareholders and hold a position in the hierarchy alongside the board of directors A company must have at least one statutory auditor. All entities, including companies, limited liability partnerships and charities, that meet certain criteria such as being above a certain size or of public interest, are required by law to have their financial statements audited. Others for various reasons, including agreement with shareholders to fulfil financing requirements, may require an audit.

FINANCIAL AUDIT

A financial audit, or more accurately, an audit of financial statements, is the verification of the financial statements of a legal entity, with a view to express an audit opinion. The audit opinion is intended to provide reasonable assurance, but not absolute assurance, that the financial statements are presented fairly, in all material respects, and/or give a true and fair view in accordance with the financial reporting framework. The purpose of an audit is provide an objective independent examination of the financial statements, which increases the value and credibility of the financial statements produced by management, thus increase user confidence in the financial statement, reduce investor risk and consequently reduce the cost of capital of the preparer of the financial statements. Financial audits are typically performed by firms of practicing accountants who are experts in financial reporting. The financial audit is one of many assurance functions provided by accounting firms. Many organizations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors. Auditing promotes transparency and accuracy in the financial disclosures made by an organization, therefore would likely to reduce of such corporations to conceal unscrupulous dealings.[1] Internationally, the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB) is considered as the benchmark for audit process. Almost all jurisdictions require auditors to follow the ISA or a local variation of the ISA.

Purpose of financial Audit Financial audits exist to add credibility to the implied assertion by an organization's management that its financial statements fairly represent the organization's position and performance to the firm's stakeholders. The principal stakeholders of a company are typically its shareholders, but other parties such as tax authorities, banks, regulators, suppliers, customers and employees may also have an interest in knowing that the financial statements are presented fairly, in all material aspects. An audit is not designed to provide absolute assurance, being based on sampling and not the testing of all transactions and balances; rather it is designed to reduce the risk of a material financial statement misstatement whether cased by fraud or error. A misstatement is defined in ISA 450 as an error, omitted disclosure or inappropriate accounting policy. "Material" is an error or omission that would affect the users decision. Audits exist because they add value through easing the cost of information asymmetry and reducing information risk, not because they are required by law (note: audits are obligatory in many EU-member states and in many jurisdictions are obligatory for companies listed on public stock exchanges). Financial auditing refers to an accounting process applied in business. The process involves using an individual body for evaluating the financial transactions and statements of a business. The ultimate purpose of financial audit is presenting an accurate amount of the business transactions of a company. Besides, it ensures that the accounts presented to the public and shareholders are accurate and justified. The results of financial audit are useful for banks, shareholders, and anybody else with an interest in the company.

Financial auditing is an accounting process used in business. It uses an independent body to examine a business' financial transactions and statements. The ultimate purpose of this form of auditing is to present an accurate account of a company's financial business transactions. The practice is used to make sure that the company is trading financially fairly, and also that the accounts it is presenting to the public or shareholders are accurate and justified.

The results of the audit procedure can be presented to shareholders, banks and anyone else with an interest in the company. One of the main reasons for a financial audit is to ensure that the trading company is not practicing any deception. This is why it is done by an independent third party. Public records show that this process has been done since 1314, but before the 1930s, nocorporations or businesses were legally required to do so. In 1934, the United States Securities Exchange Act made it a legal requirement for all public trading companies. The Securities and Exchange Commission (SEC) set up a department to deal specifically with this requirement, and it usually works with the accounting industry as to its standards. The financial auditing process usually takes places once a year, most commonly at the end of the financial year. All financial aspects of the company are inspected, and a followup auditmay also be undertaken after the year end in order to compare results. The auditor has the difficult task of maintaining objectivity while being paid by the company it is auditing. Audits are usually a thorough process, but in some cases, failures occur. The 2001 Enronscandal was a case in point, in which a company hid important facts and figures from both stakeholders and the banks. Enron filed for bankruptcy, and one of the largest accounting firms in the world, Arthur Andersen, lost the right to audit. Major incidents such as this have forced tighter and stricter regulations in the financialauditing process. Many innocent people lost huge amounts of money because unscrupulous companies hid their financial details. Sadly, many of these stricter auditing regulations have come too late for the people who lost their life savings. Since its introduction, the need for certain companies financial statements1 to be audited by an independent external auditor has been a cornerstone of confidence in the worlds financial systems. The benefit of an audit is that it provides assurance that management has presented a true and fair view of a companys financial performance and position. An audit underpins the

trust and obligation of stewardship between those who manage a company and those who own it or otherwise have a need for a true and fair view, the stakeholders. Given the importance of its role, queries are often raised about the audit, the auditors and the stakeholders they serve. This publication aims to provide useful background information on what a financial statement audit is and the role of the auditor.

Basic Procedures for a Financial Audit Generally, four key phases are outlined for financial audit process. These phases include planning the audit, determining the working of internal control, testing significant assertions about the data and evaluating compliance, and reporting the evaluations. These phases are explained below for your reference: Planning The process of financial audit begins with a plan that involves the method of collecting data to form an opinion about the organization or companys financial status. A way is planned to collect a sample reflecting a point in time in the life of the company or organization. The financial transactions and documents are then looked at. It is noteworthy that the sample should show compliance with GAAP.

Internal controls

The next step involves giving a look at the internal controls. The auditor demands info, looks closely at the records, and watches financial procedures in action. Without these steps, the auditor cannot give a statement about the financial status of the organization.

Testing

Testing implies checking whether the internal controls are working or not. An auditor requests more info, returns to the company for more inspections, and watches how financial procedures are being performed. If the evidence demonstrates GAAP

compliance, the auditor determines that the company successfully detects and prevents the errors.

Reporting

The final step in financial audit involves giving a conclusion on how the company adheres to accounting standards. The audit from a CPA gives the organization an unqualified approval, a qualified approval, a disclaimer, or an adverse finding. The unqualified approval is considered as the best result and the adverse finding is considered to be the worst result. 6 Phases of a Financial Statement Audit Engagement Acceptance The American Institute of CPAs recommends that an auditor evaluate the risks associated with each engagement. Therefore, a CPA inquires about any special circumstances, the integrity of management and pending lawsuits before performing an audit. In addition, the auditor evaluates the staffing needed to complete the engagement and determines that each staff member is able to maintain an independent viewpoint while performing the engagement. Once the auditor decides to accept the engagement, an engagement letter is prepared that details the timing, responsibility and cost of the audit. Planning Auditing standards require that an auditor prepare adequate planning for an engagement. The amount of audit planning needed is in direct relation to the size and complexity of the organization. Audit planning involves obtaining an understanding of the organization’s business and industry, performing trend and ratio analysis, documenting the entity’s process of internal control and assessing the risk of a misstatement in the entity’s financial statements. The auditor utilizes the results of the planning process to determine the timing and extent of audit testing.

 Audit Tests During the fieldwork process, or the time the auditor spends at the organization’s offices, the auditor performs tests of financial data. For instance, a CPA selects a random sample of forty disbursements to ensure checks are payable to the correct vendor and are written for the correct amount. In addition, an auditor reviews the invoice associated with the disbursement to ensure the expense is classified correctly and that the vendor actually exists. Depending on the results of the planning process, the auditor performs a variety of tests on financial statement accounts. Account Analysis During the account analysis process, the auditor ensures that financial statement account balances are supported by underlying documentation and analysis. A CPA evaluates the results of tests, reviews management’s responses to inquires and records audit-adjusting journal entries. Furthermore, the auditor documents reasons for large changes in accounts from year to year and performs any necessary research regarding requirements under generally accepted accounting principles. Reporting CPAs issue an opinion on audited financial statements as to whether the financial statements are presented in accordance with accounting principles generally accepted in the U.S. The opinion is issued on the Independent Auditor’s Report. Furthermore, the auditor may also draft the basic financial statements and the accompanying notes for the organization’s management. The auditor also issues a report on any weaknesses found in the entity’s internal control process. Summation An auditor is required to retain proper documentation regarding the audit and obtain signatures from management regarding management’s responsibility for the

information reported in the financial statements. The information is retained by the CPA should lawsuits occur regarding reported amounts and for future account analysis.

Purpose of a financial statement audit Companies produce financial statements that provide information about their financial position and performance. This information is used by a wide range of stakeholders (e.g., investors) in making economic decisions. Typically, those that own a company, the shareholders, are not those that manage it. Therefore, the owners of these companies (as well as other stakeholders, such as banks, suppliers and customers) take comfort from independent assurance that the financial statements fairly present, in all material respects, the companys financial position and performance. To enhance the degree of confidence in the financial statements, a qualified external party (an auditor) is engaged to examine the financial statements, including related disclosures produced by management, to give their professional opinion on whether they fairly reflect, in all material respects, the companys financial performance ove r a given period(s) (an income statement) and financial position as of a particular date(s) (a balance sheet) in accordance with relevant GAAP. In many cases this is required by law. Financial audits exist to add credibility to the implied assertion by an organization's management that its financial statements fairly represent the organization's position and performance to the firm's stakeholders. The principal stakeholders of a company are typically its shareholders, but other parties such as tax authorities, banks, regulators, suppliers, customers and employees may also have an interest in knowing that the financial statements are presented fairly, in all material aspects. An audit is not designed to provide absolute assurance, being based on sampling and not the testing of all transactions and balances; rather it is designed to reduce the risk of a material financial

statement misstatement whether cased by fraud or error. A misstatement is defined in ISA 450 as an error, omitted disclosure or inappropriate accounting policy. "Material" is an error or omission that would affect the users decision. Audits exist because they add value through easing the cost of information asymmetry and reducing information risk, not because they are required by law (note: audits are obligatory in many EU-member states and in many jurisdictions are obligatory for companies listed on public stock exchanges). Financial auditing for internal auditors For internal auditors and managers who want to understand and expand their roles related to financial reporting, as well those who simply need a refresher course on financial accounting concepts, this course is the ideal way to get up to speed. Beyond a basic accounting class, this course will enable participants to approach financial auditing with renewed confidence. Taking on such topics as common recipes for cooking the books, and covering information flow from business process, to financial statement, and more, this course will help participants understand how key business processes relate to financial statements, as well as the impact of information technology on financial statements.

Functions of Financial Audit Financial audits allow a company's management to have a creditable picture of the company's financial landscape. A company usually hires a firm to give an outside opinion of the financial documentation to the company's shareholders and investors. Financial audits help a company prove they are not "cooking the books," or altering the financial picture of a company. The Internal Revenue Service, financial institutions, banks, material providers, customers and employees all have access to the published financial audit and can gain a better understanding of where the company or business falls in a profit-loss

market. Audits significantly reduce alternations to company records and can catch accounting errors.

Structure of Financial Audit Financial audits are done before the end of the fourth quarter of a business's fiscal year to create a financial snapshot of how a business operated in that fiscal year. Auditors weigh industry regulations, the nature of the business and the way the business is administered. Audits look at the accuracy of internal controls, transaction records and ways to eliminate overhead. In addition to testing the accuracy of internal controls, the auditing firms also test new internal control systems.

Considerations of Financial Audit

It is important for an auditing firm to remain objective throughout the auditing process to protect the integrity of the audit publication. The final step of the audit is the publication, which is documentation of what auditors found throughout the analysis of a company's financial documentation for management. In the publication, the auditor sites abnormalities, correct procedure and anything else worth mentioning about the overall documents provided to conduct the audit.

Tax audit A tax audit is an investigation into the background of tax returns submitted by an individual or business to a tax agency. The idea of a tax audit normally conjures up feelings of anxiety even in persons who believe their tax documents are perfectly in order. While it is true that a tax audit may be called due to some perceived irregularity in one or more returns, it is also true that an audit may be done simply as part of a random sampling.

Most governments around the world include an agency that is charged with overseeing the process of tax collection from individuals and companies that reside within the jurisdiction. For the most part, the agency focuses on defining the processes involved with calculating and paying taxes. However, most tax agencies also review tax returns routinely as part of the process of correcting minor errors that may be present on any given return.

As part of the review process, tax agencies may use a policy of randomly selecting a few returns for auditing. When this is the case, there are normally not any punitive measures involved. The taxpayer simply brings along copies of the filed returns for the period cited, along with support documentation, and meets with a representative of the tax agency. If all deductions and earnings can be supported with documentation, the matter is considered complete. However, audits may also be conducted if the tax agency finds reason to believe deductions are not allowable or if there was a deliberate attempt to hide earned income. When this is the case, the government will often call for a tax audit to clear up and discrepancies. If the taxpayer can provide proof that the initial return was complete and correct, then all is well. If the tax agency finds that a deduction is not allowed, the return is recalculated and interest penalties may apply.

While a tax audit is normally considered routine, it has gained a reputation of being an extremely nerve wracking process for the taxpayer. However, many government tax agencies attempt to make the process of the tax audit as comfortable as possible for all parties concerned.

Audit of Books of Accounts is mandatory under Income Tax Act, 1961 for eligible business/ profession. This is commonly referred to as Mandatory Tax Audit u/s 44AB of IT Act. Below are FAQs on the same: Who is eligible for Tax Audit? 1) Any Assessee (Individual, Firm, Association of Persons, Body of Individuals, Hindu Undivided Family, Company, Trust, Charity etc.) carrying business or profession who satisfy either of the below two conditions are required to get their books audited u/s 44AB a) If total sales, turnover, gross receipts from business exceeds 60 lakhs (1 crore from 0104-2013) in the previous year OR b) If gross receipts from profession exceeds 15 lakhs (25 lakhs from 01-04-2013) in the previous year 2) IF the Assessee is carrying on a business of a) plying, hiring or leasing goods carriages under section 44AE OR b) exploration , etc., of mineral oils under section 44BB OR c) civil construction, etc., in certain turnkey power projects by foreign companies under section 44BBB and profits from such business is computed as per those sections,

then, IF assesse claims that profits or income is less than that presumed under those sections (even if the turnover is less than 60 lakhs/15 lakhs) then the assessee is eligible for Tax Audit

3) IF carrying on a business and profits from such business is computed under section 44AD on presumptive basis then, IF assesse claims that profits or income is less than computed under that section i.e. at 8% of turnover (even if the turnover is less than 60 lakhs/15 lakhs) then Tax Audit is required (only if the income as proposed to be less than that calculated on presumptive basis exceeds the basic exemption limit). What is the Due Date for audit and before which audit report is to be filed? Due date for audit is 30th September in the case of company, any other person and for a working partner of a firm. Who is not required to get Tax audit done u/s 44AB? The below assessees are not required to get Tax Audit done: 1. A person who derives income referred to in Section 44B (Special provision for computing profits and gains of shipping business in the case of non-residents) 2. A person who derives income referred to in Section 44BBA (Special provision for computing profits and gains of the business of operation of aircraft in the case of nonresidents) Penalty u/s 271B

The amount of penalty shall be half a percent of turnover / gross receipts or Rs. 1,50,000 whichever is lower. However no penalty may be levied if there is a reasonable cause for such failure. Exception to Tax Audit If accounts of the person are required to be audited under any other law, it would be sufficient if the accounts are audited under that law before the 30th of September. The accounts need not once again be audited by an Accountant but the report in Form 3CA and 3CD needs to be obtained from an Accountant. What happens if Companies follows different Accounting Year from Previous Year? According to CBDT Circular no.561 dated 22/05/1990, the second proviso to Section 44AB is applicable only when the accounting year is same as the previous year. If the accounting year is different from the previous year then fresh audit has to be conducted for the purposes of Sec 44AB. In this case, even though, the company was subject to statutory audit, the Tax auditor has to issue his report only in Form 3CB and not in Form 3CA.

Tax Audit is compulsory for the following: 1. A person carrying on business, if the total sales, turnover or gross receipt in business for the accounting year or years relevant to the assessment year exceed or exceeds Rs. 60 lakh. (Increased to Rs.1 crore in F.Y 2012-13) 2. A person carrying on profession, if his gross receipts in profession for an accounting year or years relevant to any of the assessment year exceeds Rs. 15 lakh. (Increased to Rs.25 Lacs in F.Y 2012-13)

3. A person whose income is assessed on a presumptive basis under section 44AE, 44BB or 44BBB. Where such an assessee declares an income lesser than presumed under the sections 44AE, 44BB or 44BBB, they are required to get their accounts audited in accordance with section 44AB. (44AE business of plying, hiring or leasing goods carriages, 44BB business of exploration etc. of mineral oils, 44BBB - foreign companies engaged in the business of civil construction, etc in certain turnkey power projects.) 4. A person whose income is assessed on a presumptive basis under section 44AD (w.e.f. 01.04.10). Where such an assessee declares an income lesser than presumed under the sections 44AD, they are required to get their accounts audited in accordance with section 44AB. Unlike the persons specified in the 3rd point, the persons specified here are only required to their accounts or books audited if their income exceeds the basic exemption limit.

Computation of total turnover for the purpose of Tax Audit Where a person is carrying on 2 Business/2 Professions the total turnover of both the businesses shall be clubbed together and tax audit shall be liable to be conducted if the Total Turnover exceeds Rs. 1 Crore/ Rs. 25 Lakhs as the case may be. Where a person is carrying on business as well as profession and the Turnover of the business is Rs. 1.2 Crore and the Gross Receipts of the profession is Rs 22 Lakhs. In such a case, ICAI has clarified through a Guidance Note that the Assessee is liable to get the Tax Audit done of both the business as well as profession because the Gross Receipts from the business exceed the limit of Rs. 1 Crore. However, if his Total Turnover was Rs. 95 Lakhs and Gross Receipts from business was Rs. 22 Lakhs, he would not be required to get his Tax Audit done. In case where a person has a total turnover of Rs. 98 Lakhs and has sold a Car for Rs. 8 Lakhs. In such a case, the total amount on adding up becomes Rs. 1.06 Lakhs i.e. above Rs. 1 Crore. Confusion arose whether the person is liable to get an audit done

in this case and ICAI has clarified that the turnover will not include any amount on the sale of the fixed asset as it was held by the person for business use and not for the purpose of sale. ICAI has further clarified that the amount received from the following items shall not be included while computing the Total Sales/Total Turnover/ Gross Receipts: Sale Proceeds of Fixed Assets Sale Proceeds of Assets held as Investments Rental Income Income by way of Interest unless assessable as Business Income Any expense which is reimbursable to the Agent by the Client Penalty for Non Compliance of Section 44AB Non Compliance of the provisions of this act shall attract Penalty under section 271B of the Income Tax Act. If any person required to get his audit done under section 44AB fails to do so before the specified date shall be liable for penalty of % of the turnover/gross receipts subject to a maximum penalty of Rs. 1,50,000 However, Section 273B states that no penalty shall be levied under section 271B if there is a reasonable cause for such failure. Some instances which have been accepted by the Tribunals/Courts as Reasonable Cause are: Resignation of the Tax Auditor and Consequent Delay Death or physical inability of the partner in charge of the Accounts Labour Problems such as strikes, lock-outs for a long period Loss of Accounts because of Fire/Theft etc. beyond the control of the Assessee Natural Calamities

Revision of Tax Audit Report Tax Audit Report efiled cannot be revised under normal circumstances. However, in case the Accounts are revised in the following circumstances, the Audit Report efiled can also be revised: Revision of Accounts of a Company after its adoption in the Annual General Meeting Change in Law with Retrospective effect Change in Interpretation of Law (Eg: CBDT Circular, Notifications, Judgements etc.) In case the Tax Audit report efiled is revised, the Auditor shall state that its a Revised Report and shall also state the reasons for the same. Limitation on CAs for the number of Tax Audits The Maximum no. of Tax Audit Assignments under Section 44AB which can be taken by a CA has been restricted to 45 by ICAI. Thus if a firm has 4 partners, the maximum no. of Tax Audits that can be taken by a firm would be 45*4=180. If the Firm undertakes all the 180 Tax Audit Assignments, the partners would not be in a position to undertake any tax audit assignment in their personal capacity. Now that tax audit efiling is mandatory, the chartered accountant conducting the tax audit would also be required to prepare the tax audit report in electronic format. Revised Guidance Note on tax audit to be released on July 1 NEW DELHI, JUNE 5: The CA institute has come up with a revised Guidance Note on tax audits, which will be released on July 1 on Chartered Accountants Day.

The revised edition was approved at the central council meeting of the Institute of Chartered Accountants of India (ICAI) that concluded on Monday, Subodh Agrawal, President of the Institute, said. A Guidance Note is issued by the institute to help its members fulfil their responsibilities in this case under the income tax law. It was last comprehensively revised in 2005. Some modifications were also brought about in the period between 2005 and now. Tax audits are mandatory where turnover of a business exceeds Rs 1 crore in a financial year. In the case of professionals, a tax audit is a must when receipts in a financial year exceed Rs 25 lakh. The central council of the institute also decided that practice done outside India would be considered for award of fellowship. However, for this to be a reality, the Chartered Accountants Act has to be amended. The CA institute will make a formal request to the Government on this issue, Agrawal said. This decision is expected to benefit chartered accountants practicing in places like Dubai. Currently, a member is granted fellowship only if he has been in continuous practice for five years within India. CENTRE OF EXCELLENCE The council also decided to set up a Centre of Excellence for Quality and Ethics at Ajmer in Rajasthan, to be jointly run by all the three professional institutes ICAI, ICWAI and ICSI, Agrawal said.

ACCOUNTANCY MUSEUM It was also decided to set up prototypes of Accountancy Museum at the institutes regional and decentralised offices all over India. The institute had earlier set up its only accountancy museum at its office in Noida, which has been recognised by the Government as Accountancy Museum of India. Tax Audit- Section 44AB- Applicability, Due Date, Forms and Penalty Due date of filing Income tax return for assessees who are liable to get their books of accounts audited is 30th September. Since the due date is nearing, lets get some points refreshed on section 44AB. Who has to get his accounts audited compulsorily: 1.A Person carrying on business is required to get his books of account compulsorily audited u/s 44AB If the total sales, turnover or gross receipt in business for the previous year relevant to assessment year exceed or exceeds Rs. 60 Lakh for the Assessment year 2011-12 and 2012-13 (Rs. 1 Crore from the assessment year 2013-14). 2. A person carrying on profession is required to get his books of account compulsorily audited u/s 44AB, if his gross receipts in profession for the previous year relevant to the assessment year exceeds 15 lakh for the assessment year 2011-12 and 2012-13 (Rs. 25 lakh from the assessment year 2013-14). 3. A person covered u/s 44AE, 44BB or 44BBB is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed under these sections(irrespective of the turnover) 4. A person covered u/s 44AD is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section

44AD(1) and if his income exceeds the maximum amount which is not changeable to tax(i.e basic exemption limit). Forms and due date: Forms No. 3CA, Form No. 3CD in case of person who carries on business or profession and who is required by or under any law to get his accounts audited and Form No. 3CB and 3CD, in case of a person who carries on business or profession but not being a person referred to above. Due date for getting the books audit and filing of return in both the above cases is the due date of furnishing return u/s 139(1) i.e 30th September of the relevant assessment year. Audit under any other law: In case where the accounts are required to be audited by or under any other law(as in the case of companies and cooperative societies), it is sufficient if accounts are audited under such other law before September 30 of the assessment year and the assessee obtains before the said date, audit report as required under such law and also a report of audit from a chartered accountant in the audit forms under Income Tax Act i.e Forms No. 3CA, Form No. 3CD No penalty u/s 271B if audit report obtained within due date but return filed after due date: After the introduction of new annexure less return forms, the audit report u/s 44AB is not required to be attached with the return. It should not be furnished separately also before or after the due date. However, an assessee should get the audit report before the due date of the furnishing of the return and should fill the relevant columns of return forms on the basis of such report. the assessee should retain the report with himself. It may be furnished at the time of assessment proceedings. No penalty shall be attracted for not furnishing the audit report on or before due date. However, if audit report is not obtained before due date, penalty u/s 271B shall be attracted. Quantum of Penalty for failure to get accounts audited within due date: If any person fails to get his accounts audited as required under the provisions of section 44AB before the due date u/s 139(1), the AO may impose penalty which may be a sum equal to onehalf percent of the total sales, turnover or gross receipts subject to a maximum of Rs. 1.5 Lakh.

Section 44AB applicable to only business Income: Section 44AB provisions are applicable only in the case of business/profession income. It is not applicable in respect of other incomes-Thai Constructions v. State of Maharashtra[2009] 184 Taxman 52 (Bom.). Turnover in case of broker: Transactions by a share broker of sale or purchase of shares on behalf of parties cannot amount to sale turnover or receipt of share broker himself within the meaning of section 44AB-CIT v Hasmukh M. Shah[2003] 85 ITD 99 (Ahd.) Work-in progress: Value of work in progress in case of the assessee engaged in construction of shop/flats would not constitute turnover within the meaning of section 44AB-CIT v B.K Jhala & Associates [1999] 69 ITD 141 (Pune).

Cost Audit Introduction to Cost Audit Audit has been described as an efficient examination of the books and records of a business or other organisations in order to verify or ascertain, and to report on the facts concerning its financial operations and results thereof. Currently, the scope of audit function has been expanded to new areas. One of these areas is cost audit. As per to the Chartered Institute of Management Accountants, that is situated in London, the meaning of cost audit, "the verification of cost accounts and a check on the observance to cost accounting plan. So, cost audit includes-checking up the arithmetical accuracy of cost accounts and verifying whether the standards that are laid down have been followed or not. Functions of Cost Audit The functions of Cost Audit are as follow: (i) It validates that the cost accounts have been accurately maintained and prepared as per to the system of cost accounting used through the concern so since to serve both cost ascertainment and cost control functions. (ii) It makes sure that the costing plan laid down that is described routine of cost accounting (like pricing of stores, apportionment and allocation of overheads etc.) is being performed. (iii) It detects and avoids errors and frauds in preparation of cost records.

Objectives of Cost Audit The objectives of Cost Audit are:

 Verification of Cost Accounts with a view to ascertain that those have been properly maintained and compiled according to the cost accounting system. Ensure that the prescribed procedure of cost accounting is duly adhere to. Detection of errors and frauds. Determination of inventory valuation Facilitating the fixation of prices of goods or services. Periodical reconciliation between cost accounts and financial accounts. Ensuring optimum utilization of human, physical and financial resources of the company. Detection and correction of abnormal losses. Inculcation of cost consciousness. Advising management as regard the areas where performance calls for improvement.

Scope of Cost Audit Section 227(2) of the Companies Act, 1956, requires the auditor of a company to state whether the accounts in his opinion give a true and fair view of the state of the companys affairs in the case of the balance sheet and of the profit or loss for its financial year in the case of the profit and loss account. Therefore, statutory financial audit of a company conducted by the Chartered Accountant is an essential annual feature of all the companies registered under the provisions of Companies Act, 1956. The Board of Directors of every company has a statutory obligation to place its audited annual accounts viz. Profit and Loss Account and Balance Sheet before the shareholders in the Annual General Meeting, duly certified by a Chartered Accountant appointed as an Auditor under the provisions of Section 224 of the Act. However, there is no corresponding statutory provision for compulsory annual audit of cost accounts of a company covered under Section 209(1)(d) of the Companies Act or under relevant Cost Accounting Records Rules.

One of the pre-requisites of cost audit is the maintenance of cost accounting records by the Company. Section 209(1)(d) makes it obligatory for a company pertaining to any class of companies engaged in production, processing, manufacturing or mining to maintain such particulars relating to utilization of material or labor or to other items of cost as may be prescribed, if such class of companies is required by the Central Government to include such particulars in the books of accounts. The rules provide that only those companies, which are covered under Section 209(1)(d) of the Companies Act and a specific Cost Audit Order has been issued with reference to a specified product by the Cost Audit Branch of Ministry of Corporate Affairs are required to get their cost accounts audited with respect to that specific product. Moreover, Cost Audit Report is not placed before the shareholders during the Annual General Meeting.

The Central Government prescribes the separate cost accounting records for each class of companies i.e. companies manufacturing a particular class of product or activity like Cement, Steel, Chemicals and Electricity etc. and these are called the Cost Accounting Records Rules for that specific industry or class of companies. When cost accounting records/formats are prescribed, they apply to those companies engaged in the manufacture of a particular product or activity. In the case of companies engaged in production or processing of other products or activities also in addition to production, processing or manufacture of the specified product, the records will have to be maintained only for the manufacture of particular product for which rules are issued and not necessary for other products. A company manufacturing bulk drugs, formulation and watches need not necessarily maintain cost accounting records in respect of watch making activity if no statutory rules are prescribed for watch making activity. The detailed provisions relating to the manner of prescription of cost accounting records, selection of the product, the contents of the rules and the list of products/ industries covered by the statutory rules under Section 209(1)(d) of the Companies Act. Thus Cost Audit u/s 233B does not

embrace a particular activity of the company unless a separate cost accounting record rule is already notified for that particular activity under Section 209(1)(d) detailing the nature of cost accounting records to be maintained.

The legal provisions relating to statutory cost audit are applicable only to companies registered under the provisions of Companies Act, 1956. Therefore, cost audit is not applicable to other enterprises like partnership, cooperative societies, etc. The Cost Audit is conducted by a Cost Accountant in practice within the meaning of the Cost and Works Accountants Act, 1959. The cost auditor is appointed by the Board of Directors of the company with the previous approval of the Central Government. The report of cost auditor is to rendered to the Central Government with a copy to the Company. Features of Cost Audit The cost audit of the companies under the relevant provisions of the Companies Act, 1956 has the following features: Assessing compliance of the relevant cost accounting records rules as applicable to the product under review; Study of the costing system to assess whether it is adequate for the cost ascertainment of the product under review Evaluation of the operating and other efficiencies of the organization under audit with special reference to the product under review; to ensure the submission of necessary details required under the Cost Audit Report Rules, 2001 as amended from time to time. Submission of Cost Audit Report in the format prescribed.

Relevance of Cost Audit In the initial years, Cost Audit was taken merely as a tool for price control mechanism for Consumer and infrastructure industries in India. The main objective of Cost Audit when statutorily introduced under the provisions of Companies Act, 1956 was to meet the Government requirements for regulating the price mechanism in core industries like Cement, Sugar, Textiles and consumer industries like Vanaspati, Formulations and Automobiles. The objective was to provide an authentic data to the Government to regulate the demand and supply in the country through a price control mechanism.

The liberalization of the economy and consequential globalization has further enhanced the need for authentic data. Therefore, the Cost Audit Report Rules have been amended from time to time to ensure that the comprehensive authentic information is available in the format required. The basic structure of the cost audit was laid down by the Cost Audit (Report) Rules, 1968 as prescribed under the relevant provisions of Companies Act, 1956. They were superseded by the Cost Audit (Report) Rules 1996, which were notified vide GSR 511(E) dated 5.1.1996. These Cost Audit (Report) Rules 1996 were also subsequently superseded by the Cost Audit Report Rules 2001.

CONCLUSION The goal of an audit is to form and express an opinion on financial statements. The audit is performed to get reasonable assurance on whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and the significant estimates made by the management. Audit conclusions and reporting are one of the principles governing an audit. Reporting is the last procedure of the process of an audit.