AUDITING:The term audit generally implies auditing of financial statements.

In such an Audit, the Auditor provides the expert opinion about the quality of such statements & merely attests the truth of the statements. Audit implies to non-financial matters as well, like audit of operations, efficiency etc. In simple terms, Audit means critical and intelligent examination of facts financial or otherwise, to give in the form of certificate or report an attestation, an expert opinion or advice. As per Auditing and Assurance standard: Basic Principles governing an Audit (AAS 1) published by the Institute of Chartered Accountants of India, Audit refers to the independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size or legal form, when such examination is conducted with a view to express an opinion thereon.

Scope and objective of Audit:The Auditing and Assurance Standard: Objectives and Scope of Audit of Financial Statements AAS 2 of the Institute of Chartered Accountants of India specifies that the main objective of an audit is to express an opinion about the truth and fairness of the financial statements. The expression emanates after performance of audit procedures i.e., to give the opinion about the financial statements, the auditor examines the financial statements to satisfy himself about the truth and fairness of the financial position and operating results of the enterprise. The secondary objectives are ( I ) detection and prevention of errors and ( II ) detection and prevention of frauds. The scope of audit refers to the identification or delineation of audit related aspects with regard to the objective of audit, procedures, areas to be covered etc. It also relates the auditors concern in the underlying accounting records and source documents. The scope of audit is governed by: The terms of engagement Relevant statutory provisions Relevant Institute pronouncement

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 AUDITORS AIMS:The auditor aims at checking the following during Audit: 1. Sufficiency and relevance of information contained in underlying accounts records and source documents To check the sufficiency and relevance of information contained in the underlying accounting and source records, the auditor examines the existence of internal control and accounting system, and tests them to decide the nature, extent and timing of other audit procedures. 2. Proper disclosure of relevant information in financial statements To determine the proper disclosure of relevant information in financial statements, the auditor compares the transactions, events represented in the source documents and underlying accounting records with the financial statements and checks that they are properly summarized, carried down to the financial statements and adequately disclosed. In other words, the auditor checks that:
i). The trial balance reflects the proper summary of balances and transactions, ii).The financial statements reflect the fair disclosure of events and transactions by proper grouping of balances, events, transactions, iii).Information reflected in the financial statements adequately convey the messages required by narration and notes as may be desired by statute, pronouncements or requirement of the context, iv). Judgement of the management is fairly made in matters where they are inherent and implied For example, estimation involved in making a provision, or selection of a particular accounting policy among available alternative policies (like in depreciation methods).

EVALUATIVE FACTORS CONSIDERED FOR SELECTION OF AUDIT EVIDENCE:1. Relevance 2. Reliability 3. Sufficiency 4. Cost effectiveness 5. Convenience 6. Preservation 7. Materiality of the assertion to be tested 8. Need for corroboration or resolution of inconsistency 9.Accepted Auditing standards / agreed upon procedures to obtain specified evidence.

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 METHODS OF OBTAINING AUDIT EVIDENCE:The auditor obtains sufficient and appropriate audit evidence through the performance of compliance and substantive procedure to enable him to draw reasonable conclusions, to base his opinion on financial information (AAS 1 Basic Principles Governing an Audit). Compliance procedures are tests designed to obtain reasonable assurance that internal controls on which audit reliance is based are in effect i.e., it tests the framework of internal control. Substantive procedures are designed to obtain audit evidence as to the completeness, accuracy and validity of the data produced by the accounting system i.e., it is test about the financial data. The substantive tests are of two types: i. Testing details of transactions and balances ii. Analysis of significant ratios and trends including the resulting enquiry of unusual fluctuation and items.

PROCEDURE TO DRAW REASONABLE CONCLUSIONS:Following are the methods of obtaining audit evidences:

Inspection

Analytical Review

Observation

Computation

Inquiry

Confirmation

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 Inspection- Inspection consists of examination of documents, records or tangible

assets.

Observation- Observation consists of witnessing a process or procedure without

actually doing it, by the auditor. If inventory is counted by the clients staff, the auditor may witness physical counting.

Inquiry and confirmation- Inquiry consists of seeking appropriate information

from sources inside or outside the entity, such as operational personnel or management or owners or experts or persons dealing with the entity. It also includes interacting with an electronic information system with a search and query language. And confirmation techniques consist of the response to an inquiry to substantiate the information. For example, the debtors may be requested to confirm the balance as per their records with the balances as per the entitys records; or the consignee may be asked to confirm that the stocks lying with him do belong to the concerned entity.

Computation- Computation consists of checking the arithmetical accuracy of the

source data, or accounting data of the entity. It may include addition, subtraction, multiplication, division, checking the carry over, brought down, comparing the totals of two sides, checking the postings, checking extraction, reconciliation etc.

Analytical Review
Analytical review consists of Studying significant ratios, and trends Investigating unusual fluctuations and items

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 TAX AUDIT:Tax Audit refers to the audit carried out under the provisions of section 44AB of the Income Tax Act, 1961. Originally introduced by The Finance Act, 1984, in the Income-tax Act, 1961 w.e.f. 1 April 1985 through Section 44AB. Even if income is below taxable limit, tax audit needs to be carried out if turnover exceeds prescribed limit. Applicable to both Residents and Non-Residents. The purpose of Tax audit is to ensure proper maintenance of books of accounts and other records, in order to reflect the true income of the assessee and to facilitate the assessing officer to carry out the verification.

OBJECT OF TAX AUDIT: To assist the Assessing Officer in computing the total income of the assessee. Involves expression of opinion on the truth and correctness of certain factual details by assesses to the Income Tax Dept. To enable proper assessment of tax by the Department. To ensure that income-tax assessments are made simpler and faster since the basic data required for assessments are provided with the return of income, by filing Forms 3CA, 3Cb and 3CD of the tax audit report. Increases self compliance by the tax payer and educates them.

SALIENT FEATURES: Limit of turnover business wise. Option of presumptive scheme-business wise. Audit for that business only which does not opt for presumptive norms and total income exceeds taxable limit. Applicability of TDS provisions. Not applicable to Company and LLP.
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 BASIC ELEMENT: Person carrying on business: Sales turnover, gross receipts exceeds Rs. 40 lacs in previous year. Deemed profit U/s 44AD, 44AE, 44AF, 44BB & 44BBB and claims it to be lower. Not applicable if covered by Sec. 44B and 44BBA.

Person carrying on Profession: Gross receipts in profession exceeds Rs. 10 lacs.

Position from AY-2011-2012:(Changes made by Finance (No.2) Act 2009 U/s 44AD): 44AD now applicable to all eligible assessees engaged in any eligible business. Eligible assessee Individual, HUF or General Firm. Eligible business any business except buying/leasing or hiring goods carriage referred to in Sec. 44AE and turnover from eligible business does not exceed Rs. 40 lacs.

Appointment of auditor:Accountant
in Full Time Practice

Statutory Auditor

Chartered Accountant
or

Firm of CA

CA/ Firm appointed as Tax Consultant

AUDITORS

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 Audit due date: Obligation on the aforesaid persons to obtain before the "specified date" a report of the audit. Report to be in the prescribed form duly signed and verified by the accountant. specified date" relevant to the assessment year, means 30th of September of the A.Y.

Audit planning:Obtain Appointment Letter Issue Engagement Letter Obtain Representation Letter Obtain Certificates as required in clause of Form 3CD Forms of tax audit report:S.No
1. 2. 3.

Particulars
Assessee not required to get his accounts audited under any other law. Assessee required to get his accounts audited under any other law. Assessee required to get his accounts audited under any other law and financial year is not previous year.

Applicable Form
Form 3CB Form 3CD. Form 3CA Form 3CD. Form 3CB Form 3CD. and and and

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 Penalty:U/s 271B, if a person fails to get his accounts audited as required under section 44AB or to furnish the report of such audit, then: The Penalty imposed shall be, lower of
% of sales or gross receipts Rs 1,00,000/-

NO PENALTY IS IMPOSABLE U/S 271B, IF THE ASSESSEE PROVES THAT THERE WAS A REASONABLE CAUSE FOR THE FAILURE.

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 SPECIMEN OF FORM CB
FORM NO. 3CB
[See rule 6G(1)(b)] Audit report under section 44AB of the Income-tax Act, 1961 in the case of a person referred to in clause (b) of sub-rule (1) of rule 6G * I/We have examined the balance sheet as at 31st March ______________________________________ ,and the * profit and loss account/income and expenditure account for the year ended on that date, attached herewith, of ___________________________________________ mention name and address of the assessee with permanent account number] 2. * I/We certify that the balance sheet and the * profit and loss account/income and expenditure account are in agreement with the books of account maintained at the head office at ______________________ and ** ______________________ branches. 3. (a) * I/We report the following observations/comments/discrepancies/inconsistencies; if any: ____________________________________________________________________________________ (b) Subject to above,(A) * I/We have obtained all the information and explanations which, to the best of * my/our knowledge and belief, were necessary for the purposes of the audit. (B) In * my/our opinion, proper books of account have been kept by the head office and branches of the assessee so far as appears from * my/our examination of the books. (C) In * my/our opinion and to the best of * my/our information and according to the explanations given to * me/us, the said accounts, read with notes thereon, if any, give a true and fair view:(i) in the case of the balance sheet, of the state of the affairs of the assessee as at 31st March, _________; and (ii) in the case of the * profit and loss account/income and expenditure account of the * profit/loss or * surplus/deficit of the assessee for the year ended on that date. 4. The statement of particulars required to be furnished under section 44AB is annexed herewith in Form No. 3CD. 5. In * my/our opinion and to the best of * my/our information and according to explanations given to * me/us, the particulars given in the said Form No. 3CD and the Annexure thereto are true and correct.

*** Signed Place _____________ Date ______________

Name : ________________________ Address : ______________________ ______________________ ______________________

Notes : 1. *Delete whichever is not applicable. 2. **Mention the total number of branches. 3. ***This report has to be signed by(i) a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); or (ii) any person who, in relation to any State, is, by virtue of the provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered in that State. 4. The person, who signs this audit report, shall indicate reference of his membership number/certificate of practice number/authority under which he is entitled to sign this report.

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 CONTENTS OF FORM CD:In the case of a person who carries on business or profession but who is not required by or under any other law to get his accounts audited the audit report has to be given in Form No. 3CB. Form No. 3CB consists of four paragraphs.

PARA 1:The tax auditor has to state whether he has examined the balance sheet as at 31st March of the relevant previous year and the profit and loss account/ income and expenditure account for the year ended on the date. Further, such a balance sheet and the profit and loss account must be attached with the audit report.

PARA 2:The tax auditor has to certify that the balance sheet and the profit and loss account/income and expenditure account are in agreement with the books of accounts maintained at the head office and branches. He has also to mention the total number of branches.

PARA 3:Tax auditor should report only such of those observations/comments/ discrepancies/ inconsistencies which are of qualificatory nature which affect his reporting about obtaining all the information and explanations which were necessary for the purposes of the audit, about the keeping of proper books of account by the head office and branches of the assessee and about the true and fair view of the financial statements.

PARA 4:That the prescribed particulars are furnished in Form No.3CD annexed to the report and whether in his opinion and to the best of his information and according to the explanations given to him, they are true and correct. The auditor may have a difference of opinion with regard to the particulars furnished by the assessee and he has to bring these differences under various clauses in Form No.3CD. The auditor should make a specific reference to those clauses in Form No.3CD in which he has expressed his reservations, difference of opinion, disclaimer etc. in this paragraph.

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 SPECIMEN OF FORM CD
FORM NO. 3CD

[See rule 6G(2)]

Statement of particulars required to be furnished under Section 44AB of the Income Tax Act, 1961

PART A

1. 2. 3. 4. 5. 6. 7

Name of the assessee Address Permanent Account Number Status Previous year ended Assessment year (a) (b)

: : : : Company : March 31,2006 : 2006-2007

PART B

If firm or Association of Persons, indicate names of partners/members and their profit sharing ratios If there is any change in the partners or members or in their profit sharing ratio since the last date of the preceding year, the particulars of such change. Nature of business or profession (if more than one business or profession is carried on during the previous year, nature of every business or profession). If there is any change in the nature of business or profession, the particulars of such change.
Whether books of account are prescribed under section 44AA, if yes, list of books so prescribed.

(a)

(b) 9 (a) (b)

Books of account maintained. (In case books of account are maintained in a computer system, mention the books of account generated by such computer system)
List of books of account examined.

(c) 10

11

(a) (b)

Whether the profit and loss account includes any profits and gains assessable on presumptive basis, if yes, indicate the amount and the relevant section (44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB or any other relevant section). Method of accounting employed in the previous year. Whether there has been any change in the method of accounting employed vis--vis the method employed in the immediately preceding previous year. Page | 11

(c) (d)

If answer to (b) above is in the affirmative, give details of such change, and the effect thereof on the profit or loss. Details of deviation, if any, in the method of accounting employed in the previous year from accounting standards prescribed under section 145 and the effect thereof on the profit or loss. Method of valuation of closing stock employed in the previous year. Details of deviation, if any, from the method of valuation prescribed under section 145A, and the effect thereof on the profit or loss. Give the following particulars of the capital asset converted into stock-in-trade

12

(a) (b)

12 A (a) (b) (c) (d) 13 (a) (b)

Description of capital asset; Date of acquisition; Cost of acquisition; Amount at which the asset is converted into stock-in-trade. Amounts not credited to the profit and loss account, being,the items falling within the scope of section 28;
the proforma credits, drawbacks, refund of duty of customs or excise or service tax, or refund of sales tax or value added tax, where such credits, drawbacks or refunds are admitted as due by the authorities concerned;

(c) (d) (e) 14

escalation claims accepted during the previous year; any other item of income; capital receipt, if any. Particulars of depreciation allowable as per the Income-tax Act, 1961 in respect of each asset or block of assets, as the case may be, in the following form: -

(a) (b) ( c)
(d)

Description of asset/block of assets. Rate of depreciation. Actual cost or written down value, as the case may be. Additions/deductions during the year with dates; in the case of any addition of an asset, date put to use; including adjustments on account of
(i) Modified Value Added Tax credit claimed and allowed under the Central Excise rules, 1944, in respect of assets acquired on or after March 1, 1994, (ii) change in rate of exchange of currency, and

(iii) subsidy or grant or reimbursement, by whatever name called. (e) (f) Depreciation allowable. Written down value at the end of the year. Page | 12

15 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (a) (b) 16 (a) (b)

Amounts admissible under sections 33AB 33ABA 33AC (wherever applicable) 35 35ABB 35AC 35CCA 35CCB 35D 35DD 35DDA 35E debited to the profit and loss account (showing the amount debited and deduction allowable under each section separately );
not debited to the profit and loss account. Any sum paid to an employee as bonus or commission for services rendered, where such sum was otherwise payable to him as profits or dividend. [Section 36(1)(ii)]. Any sum received from employees towards contributions to any provident fund or superannuation fund or any other fund mentioned in section 2(24)(x); and due date for payment and the actual date of payment to the concerned authorities under section 36(1)(va). Amount debited to the profit and loss account, being :Expenditure of capital nature;

17 (a) (b) (c) (d)

Expenditure of personal nature; Expenditure on advertisement in any souvenir, brochure, tract, pamphlet or the like, published by a political party; Expenditure incurred at clubs, (i) as entrance fees and subscriptions;

(e)

(ii)as cost for club services and facilities used; (i) expenditure by way of penalty or fine for violation of any law for the time being in force; (ii) any other penalty or fine;
(iii) expenditure incurred for any purpose which is an offence or which is prohibited by law; Amount inadmissible under section 40(a); Interest, salary bonus, commission or remuneration inadmissible under section 40(b)/40(ba) and computation thereof; (A) whether a certificate has been obtained from the assessee regarding payments relating to any expenditure covered under section 40A(3) that the payments were made by account payee cheques drawn on a bank or account payee bank draft, as the case may be [Yes/No]; (B) amount inadmissible under section 40A(3) read with rule 6DD [with break-up of inadmissible amounts]; provision for payment of gratuity not allowable under section 40A(7);

(f) (g)

(h)

(i)

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(j) (k) (l)

(m)

any sum paid by the assessee as an employer not allowable under section 40(A)9; particulars of any liability of a contingent nature. amount of deduction inadmissible in terms of section 14A in respect of the expenditure incurred in relation to income which does not form part of the total income; amount inadmissible under the proviso to section 36(1)(iii). Particulars of payments made to persons specified under section 40A(2)(b). Amounts deemed to be profits and gains under section 33AB or 33ABA or 33AC. Any amount of profit chargeable to tax under section 41 and computation thereof In respect of any sum referred to in clause (a), (b), (c), (d), (e) or (f) of section 43B, the liability for which; (A) pre-existed on the first day of the previous year but was not allowed in the assessment of any preceding previous year and was (a) paid during the previous year; (b) not paid during the previous year;

18 19 20 21*

(B) was incurred in the previous year and was (a) paid on or before the due date for furnishing the return of income of the previous year under section 139(1); (b) not paid on or before the aforesaid date. 22 (a)
Amount of Modified Value Added Tax credits availed of or utilised during the previous year and its treatment in the profit and loss account and treatment of outstanding Modified Value Added Tax credits in the accounts. Particulars of income or expenditure of prior period credited or debited to the profit and loss accounts. Details of any amount borrowed on hundi or any amount due thereon (including interest on the amount borrowed) repaid, otherwise than through an account payee cheque. [Section 69D]. Particulars of each loan or deposit in an amount exceeding the limit specified in section 269SS taken or accepted during the previous year: -

(b) 23

24

(a) *

(i) name, address and permanent account number (if available with the assessee) of the lender or depositor; (ii) amount of loan or deposit taken or accepted; (iii) whether the loan or deposit was squared up during the previous year; (iv) maximum amount outstanding in the account at any time during the previous year; (v) whether the loan or deposit was taken or accepted otherwise than by an account payee cheque or an account payee bank draft. *(These particulars need not be given in the case of a Government company, a banking company or a corporation established by a Central, State or Provincial Act.)

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(b)

Particulars of each repayment of loan or deposit in an amount exceeding the limit specified in section 269T made during the previous year :-

(i) name, address and permanent account number (if available with the assessee) of the payee; (ii) amount of the repayment; (iii) maximum amount outstanding in the account at any time during the previous year; (c)
(iv) whether the repayment was made otherwise than by account payee cheque or account payee bank draft. Whether a certificate has been obtained from the assessee regarding taking or accepting loan or deposit, or repayment of the same through and account payee cheque or an account payee bank draft. [Yes/No] The particulars (i) to (iv) at (b) and the Certificate at (c) above need not be given in the case of a repayment of any loan or deposit taken or accepted from Government, Government Company, banking company or a corporation established by a Central, State or Provincial Act. Details of brought forward loss or depreciation allowance, in the following manner, to the extent available :

25

(a)

Serial Assessment Nature of Amount Amount as Remarks Number Year Loss/ as assessed Allowareturn(give refence ed rence to (in (in relevant rupees) rupees) order) (b)
Whether a change in shareholding of the company has taken place in the previous year due to which the losses incurred prior to the previous year cannot be allowed to be carried forward in terms of section 79. Section-wise details of deductions, if any, admissible under Chapter VIA. Whether the assessee has complied with the provisions of Chapter XVII-B regarding deduction of tax at source and regarding the payment thereof to the credit of the Central Government.

26 27 (a)

(b)

If the provisions of Chapter XVII-B have not been complied with, please give the following details* namely :Amount (i) Tax deductible and not deducted at all (ii) Shortfall on account of lesser deduction than required to be deducted (iii) Tax deducted late (iv) Tax deducted but not paid to the credit of the Central Government *Please give the details of cases covered in (i) to (iv) above.
In the case of a trading concern, give quantitative details of principal items of goods traded:

28

(a)

(i) Opening stock; (ii) Purchase during the previous year; (iii) Sales during the previous year; Page | 15

(iv) (v) (b)

Closing stock; Shortage/excess, if any,

In the case of a manufacturing concern, give quantitative details of the principal items of raw materials, finished products and byproducts:

A. Raw materials: (i) Opening stock; (ii) Purchases during the previous year; (iii) Consumption during the previous year; (iv) Sales during the previous year; (v) Closing stock; (vi) *Yield of finished products; (vii) *Percentage of yield; (viii)*Shortage/excess, if any.
B. Finished products/By-products:

(i) (ii) (iii) (iv) (v) (vi) 29 (a) (b) (c ) 30 31 32 (a)

(b)

Opening stock; Purchases during the previous year; Quantity manufactured during the previous year; Sales during the previous year; Closing stock; Shortage/excess, if any.

* Information on may be given to the extent available. In the case of a domestic company, details of tax on distributed profits under section 115O in the following form:

Total amount of distributed profits; Total tax paid thereon; Dates of payment with amounts.
Whether any cost audit was carried out, if yes, enclose a copy of the report of such audit [See section 139(9)]. Whether any audit was conducted under the Central Excise Act, 1944, if yes enclose a copy of the report of such audit Accounting ratios with calculations as follows: Gross profit/Turnover;

(c ) (d)

Net profit/Turnover; Stock-in-trade/Turnover;

Material consumed /Finished goods produced.

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Annexure I PART A 1. 2. 3. 4. 5. 6. Name of the assessee Address Permanent Account number Status Previous year ended Assessment year Company. 31ST March, 2006 2006-2007

PART B

Nature of business or profession in respect of Code: every business or profession carried on during the previous year: Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Parameters Current Year Rs. Preceding Year Rs.

Paid up share capital/capital of partner/proprietor Share Application Money/Current Account of Partner or Proprietor, if any Reserves and Surplus/Profit and Loss Account Secured Loans Unsecured loans Current liabilities and provisions Total of Balance Sheet Gross turnover/gross receipts Gross Profit Commission received Commission paid Interest received Interest paid Depreciation as per books of account Net Profit (or loss) before tax as per Profit and Loss Account Taxes on income paid/provided for in the books

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 CONTENT OF FORM CD PART A- General Particulars

Clause 1: Name of the assessee
a) b) c) d) Provide the name of the assessed, correct and full name should be given. Incase of companies and firms to the extent possible acronyms should be avoided. In case of a branch, write name of branch along with name of assessee. If assessee is a proprietor give the name of the firm along with the name of the proprietor.

Clause 2: Address
a) Provide the address from where the assessee conducts the business. b) In case of company, address of registered office must be given. c) In case of branch, address of branch should be given. d) Care must be taken that the same address is communicated to the Income tax department for assessment purposes.

Clause 3: Permanent Account Number

a) b) The permanent account number has to be mentioned. If the application is pending, the fact should be mentioned along with the GIR No.

Clause 4: Status
a) Status of the assessee as per section 2(31) of the Income Tax Act 1961, should be mentioned. i. An individual. ii. A Hindu undivided family. iii. A company. iv. A firm. v. An association of persons or a body of individuals, whether incorporated or not. vi. A local authority. vii. Every artificial juridical person. Status here does not refer to residential status.

b)

Clause 5: Previous year ended

a) Previous year should be mentioned as per section 3 of the Income Tax Act 1961, i.e. ending on 31st March. b) In case of a newly set up business or profession, previous year will be beginning on the date on which it is set up and ending on 31st March.

Clause 6: Assessment year

Assessment year relevant to the previous year for which audit has been done should be stated.

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 PART B- Disclosers of Particulars

Clause 7 Mention the name of partners with profit sharing ratios and loss sharing ratios, if they are different. If as per the partnership deed there are separate ratios for sharing profits and losses both are to be mentioned separately. If there is any such change since the last date of the preceding year must be stated. All the changes occurring during the entire previous year must be stated. Clause 8 The principal line of business should be stated along with the nature of business. With regard to the nature of business, the principal line of each business such as manufacturing of consumer durables, trading in chemicals, and wholesale trade in textiles should be stated. If there are more than one type of business, then particulars for all should be stated. In case of a person rendering services, the nature of each type of service should be broadly stated. Any material change in business should be precisely stated. Clause 9 Sub-Clause a) & b) This clause is applicable tospecified professionals (person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorized representative or film artist)- whose total gross receipts in the profession exceeds one lakh fifty thousand rupees in any one of the three years immediately preceding the previous year, or, where the profession has been newly set up in the previous year, and his gross total receipts in that year is likely to exceed Rs. 1,50,000 shall keep and maintain the books of account and other documents as follows.
A cash book. A journal, if the accounts are maintained according to the mercantile system of accounting. A ledger. Carbon copies of bills, whether machine numbered or otherwise serially numbered.

Obtain a list of books of accounts from the assessee. In case books of account are maintained in a computer system, mention the books of account generated by such computer system and obtain a printout for the same.

Sub- Clause c)
Give a list of accounts examined .if any books could not have been examined due to nonavailability, the fact should be stated.

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Clause 10This clause is applicable if a person is having both regular business as well as business falling under presumptive taxation. In case of presumptive taxation, there is no need to maintain books of account if the income is shown above or at the limit prescribed. By passing a single accounting entry the profit and loss account may reflect such income. If it is included in Profit and Loss Account then, to deduct such some from regular business activity, this information is required. Clause 11Companies compulsorily should follow mercantile system. In case of other assesses, other than companies, they may opt for Cash System or Mercantile System. If any assessee changes from one method to another method, it will have a bearing on the profitability which requires to be quantified. Clause 12 FIFO, Weighted Average, Net realizable value etc., method consistently employed by the assessee. Value of purchase and sale of goods and inventory in accordance with the method followed regularly; and To adjust for tax, duty or fee paid to bring to the place of its location and condition as on the date of valuation. Clause 13Certain entities have tendency to straight away transfer to Balance Sheet. If so, then only this information is required to be provided. This has an impact on concealment of income one has to thoroughly scrutinize the credit side of balance sheet to see that such income is credit to balance sheet items instead of P & L items and should be enlisted under this clause. Clause 14Asset wise or block wise depreciation.

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Clause 1533AB 33ABA 33AC Tea Coffee Rubber development account Site Restoration Fund Reserves for shipping business Upto 50 % of the profits Up to 20% of the profits 50% of such profits debited to Profit and Loss Account and reserve is created to the same extent &Utilize for obtaining new ships within 8 years.

35

35ABB

35AC

35CCA

35CCB

35D 35DDA 35E

Sums paid to scientific research associations, to a company for scientific 1 of the sums paid research, to a University, college or any institution to be used for social science and or statistical research subject Expenditure for obtaining licence to operate Deduction equal to the telecommunication services appropriate fraction of the amount of such expenditure. Expenditure by way of payment of any sum to a Upto Amount of Expense public sector company or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme, Expenditure by way of payment to associations Upto Amount of Expense and institutions for carrying out rural development programmes. Expenditure by way of payment to associations Upto Amount of Expense and institutions for carrying out programmes of conservation of natural resources. Amortisation of Preliminary Expenses Upto Amount of Expense Amortisation of Expenses incurred under Upto Amount of Expense voluntary retirement scheme. Deduction of expenses in relation to prospecting Upto Amount of Expense of mineral oils

Clause 16:If the payment to employee in the form of bonus or commission not having any link with the profits to be attributed for such services, the same shall be allowable in its entirety. Employees contribution collected by employer and not paid in time will call for disallowance. If payments are made within grace period under that enactment, the amount shall not be disallowed.

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Clause 17 Amount of expenditure of respective nature need to be specified in accordance with nature of expenditure. Clause 18 Obtain management representation in the beginning in the form of list of directors/ Partners holding partnership, directorship or proprietorship in any concern and the nature of business transacted with those entities through ledger scrutiny. Clause 20:41 (1) 41 (2) 41 (3) 41 (4) 41 (4a) 41 (5) Expenses of earlier year if received during the year If sales realization of assets exceed the written down value Gains on asset representing expenditure of a capital nature on scientific research Bad Debts written off earlier and recovered in the current year Reserve created and subsequently withdrawn Income from discontinued business after setting off certain admissible losses.

Clause 21 Tax includes Municipal tax, water tax, conservation tax. They are the statutory liabilities. Hence those items also should be included. However, interest on excise liability is not a statutory liability and hence its non payment does not amount to disallowance under section 43B of the Act. Clause 24 a & b Details of Transactions such as Transactions between sister concerns. Transfer entries. Transaction through electronic transfer. Direct Deposit of Cash in Bank Account. Clause 25 a & b Obtain list of shareholders as on opening date and closing date of the accounting year with documentary proof for such changes. If no change is there, obtain management representation to that effect since you will not be able to know the shareholding pattern through public domain. Clause 26 Deductions under Chapter VI A

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Clause 27 Details regarding Provisions of TDS. Clause 28 Quantitative Details: Sub-Clause a) For Traders only Sub-Clause b) For Manufacturers only Sub-Clause c) For Manufacturers cum Traders also. Clause 32 Accounting Ratios All ratios in monetary terms only. Ratio for business as a whole Consistency to be maintained

ANNEXURE 1
Financial Parameters
PART A- General Information. PART B- Detail Information of Capital Account, Fixed account, Current Assets and Liabilities of Current Year as well as Previous Year.

ANNEXURE 2
FBT abolished w.e.f. Asstt. Year 2010-11 Following items executed from FBT w.e.f. Asstt. Year 2009-10
credit facility for employees children payment to sponsor on employee sportsman expenditure to organize sports events for employees maintenance of guest house other than for training purpose valuation for festival celebration reduced from 50% to 20% expenditure through electronic meal card subject to condition.

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 BANK AUDIT: TYPES OF BANK AUDIT:-

Statutory Audit
Internal Audit Concurrent Audit System Audit Revenue Audit

Statutory Audit:The audit which is compulsory as per law. The Statutory Audit of banks includes examination & inspection of internal audit, concurrent audit, etc. The Statutory Audit of banks is like a post mortem activity. The suggestions of Statutory Auditors can assist the bank management in improving the effectiveness of internal audit/concurrent audit/ inspection etc. In this way Statutory plays a very important role in regulating the banking companies. Bank generally have a well-organized system of internal audit. There internal auditor pays frequent visit to branches. They are an important link in internal control of the bank. The system of Internal Audit in different banks also have a system of regular inspection of branches & head offices. A separate department within the bank by firms of CA carries out the Internal Audit & Inspection Function.

Internal Audit:-

Concurrent Audit:-

It is the system which is introduced by RBI with the view that interval between the occurrence of transactions by auditors take place as soon as the transaction take place. It has perceived the effective means of control. The main aim of concurrent audit is to see that the transaction are properly recorded, documented and vouched.
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 System Audit:- In todays Technological advancements, Banking Companies

are using a well organized computer system to perform their transactions. So, it is very necessary to conduct System Audit in order to evaluate the computer system for effectiveness. System Audit is the audit of such computer environment/system & comprises the following internal controls over EDP activities & with application controls specific procedures over accounting application assuring that all transactions are recorded & authorized & completely, accurately, timely processed manner which in turn are verified by computer.

Revenue Audit:- It refers to audit of revenues/ incomes. In Revenue Audit

of Banking Companies, auditors go through the various sources of revenue from which bank earn income. In Revenue Audit of banks, the auditor inspect that all the records are showing true and fair pictures of revenue or not.

OBJECTIVES OF BANK AUDIT: To supplement efforts of the Bank in carrying out simultaneous internal checks of transactions and compliance with the systems and procedures of the Bank. To perform substantive checking in key areas and rectification of deficiencies in the earliest possible period to preclude the incidence of serious errors and fraudulent manipulation. To reduce the interval between a transaction and its examination by an independent person not involved in its documentation. To improve the functioning of the branch, leading to up gradation of working of the branch and prevention of fraud. Compliance with internal control as well as RBI/Government of India guidelines. Identification of areas/activities requiring corrective action and urgency.

NEED OF BANK AUDIT: The transactions are properly recorded/documented and vouched The irregularities are rectified immediately The systems and procedures of the bank are implemented properly The transactions are performed or decisions are taken within the policy parameters stipulated by the Head Office, and is not violating the instructions or policy prescriptions of the RBI The delegated authority is exercised and the same is within the terms and conditions of the delegated authority.

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 SCOPE OF BANK AUDIT:Cash

Investments Loans & Advances

Foreign Exchange Transactions

SCOPE
Deposits

Operations &
Housekeeping

Tax Related Issues

Cash: Daily cash transactions with particular reference to any abnormal receipts and payments. Proper accounting of inward and outward cash remittances. Proper accounting of Currency Chest transactions, its prompt reporting to RBI. Expenses incurred by cash payment involving sizeable amount, whether such expenditure is authorized by appropriate authority.

Loans & Advances: Ensure that loans and advances have been sanctioned properly and in accordance with delegated authority. Verify the compliance of statutory and other restrictions on loans and advances prescribed by bank time to time. Ensure that securities & documents have been received as applicable to particular loans and securities have been properly charged/ registered. Ensure all conditions of sanction have been complied with.
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Ensure timely receipt of Installment, interest and charges and also ensure that post disbursement supervision and follow-up is proper, such as the timely receipt of stock and book debt statements, QIS data, renewal of limits, insurance etc. Physical verification of assets kept as security against loans and verification of end use of loans as per periodicity prescribed by the bank. Verify whether there is any misutilisation of the loans and whether there are instances indicative of diversion of funds.

Investments: Ensure that in respect of purchase and sale of securities, the branch has acted within its delegated power having regard to its Head Office instructions. Ensure that the securities held in the books of the branch are physically held by it. Ensure that the branch is complying with RBI/Head Office guidelines regarding Bank Receipts, SGL forms, delivery of scripts documentation and accounting. Ensure that the sale or purchase transactions are done at rates beneficial to the Bank.

Foreign Exchange Transactions: Import transaction. Collection of Bills Direct Bills. Bills under L/C. Export transaction. Bills for collection. Remittances Inward & Outward. Guarantees Financing of Import and Export under various types of credit facilities. Ensure adherence to the guidelines issued by RBI/HO of the Bank about dealing room operations.

Deposits: Check the transactions about term deposits received and repaid. Percentage check of interest paid on deposits may be made, including calculation of interest on large deposits. Check new accounts opened, particularly current accounts, operations in new current/S.B. accounts may be verified in the initial periods to see whether there are any unusual operations.

Operations & Housekeeping: Auditing of day to day transactions in systematic manner and passing of vouchers. Fixed Assets physical verification. Physical verification of Gold/Inventory/Lockers, Control over sale/transfer, safe keeping and custody of Gold/Inventory/Locker. Audit of all registers maintained at branch like inward and outward registers etc
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Reconciliation of accounts with other banks. Ensure that the maintenance and balancing of accounts, ledgers and registers including cash book is proper. Ensure that customer complaints are dealt with promptly. In case of difference in clearing, there is a tendency to book it in an intermediary suspense account instead of locating the difference. Examine the day book to verify as to how the difference in clearing has been adjusted.

Tax Related Issues: Checking of PAN/Form 60/61 required at the time of Opening of New Account,Rs 50000 or more deposited at one time in any account or Accepting cash for purchase of foreign currency by customer exceeding Rs.25000/- at any one time.. Verification of compliance of issues relating to TDS like deduction of TDS, Issue of TDS certificate. Verify advance payment of rent details with the lease deed or advance payment of contract payment with contracts. Compliance of Service Tax, Trade Tax, other duties and taxes.

EXECTION OF AUDIT:INSPECTION & OBSERVATION

ANALYTICAL PROCEDURE

INQUIRY & CONFORMATION

COMPUTATION

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 INSPECTION & OBSERVATION:Inspection consists of examining records, documents, or tangible assets. The auditor inspects in order to: Be satisfied as to the physical existence of material negotiable assets that the bank holds; and Obtain the necessary understanding of the terms and conditions of agreements (including master agreements) that are significant individually or in the aggregate in order to: Consider their enforceability; and Assess the appropriateness of the accounting treatment they have been given.

INQUIRY & CONFORMATION:Inquiry consists of seeking information of knowledgeable persons inside or outside the entity. Confirmation consists of the response to an inquiry to corroborate information contained in the accounting records. The auditor inquires and confirms in order to: Obtain evidence of the operation of internal controls; Obtain evidence of the recognition by the banks customers and counter parties of amounts, terms and conditions of certain transactions; Obtain information not directly available from the banks accounting records.

COMPUTATION:Computation consists of checking the arithmetical accuracy of source documents and accounting records or of performing independent calculations. In the context of the audit of a banks financial statements, computation is a useful procedure for checking the consistent application of valuation models.

ANALYTICAL PROCEDURE:Analytical procedures consist of the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predicted amounts.

AUDITOR FOR BANK AUDIT: Appointment of Auditor: the auditor of a banking company is to be appointed at the annual general meeting of the shareholders. the auditor of a nationalised bank is to be appointed by the bank concerned acting through its Board of Directors. The auditors of the State Bank of India are to be appointed by the Reserve Bank of India in consultation with the Central Government. The auditors of regional rural banks are to be appointed by the bank concerned with the approval of the Central Government.
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In either case, approval of the Reserve Bank is required before the appointment is made

 Remuneration of auditor: The remuneration of auditor of a banking company is to be fixed in accordance with the provisions of the Companies Act, 1956. The remuneration of auditors of nationalised banks and State Bank of India is to be fixed by the Reserve Bank of India in consultation with the Central Government. In the case of regional rural banks, the auditors remuneration is to be determined by the bank concerned with the approval of the Central Government.

Rights of Auditor: The auditor of a banking company or of a nationalised bank, State Bank of India, a subsidiary of State Bank of India, or a regional rural bank has the same powers as those of a company auditor in the matter of access to the books, accounts, documents and vouchers. He is also entitled to require from the officers of the bank such information and explanations as he may think necessary for the performance of his duties. In the case of a banking company, he is entitled to receive notice relating to any general meeting. He is also entitled to attend any general meeting and to be heard there at on any part of the business, which concerns him as auditor.

QUALITY OF REPORT:

Observations in audit report should be specific. It should not be like in some case or in few cases. All the remarks should be written with instances. Ensure that in report, only those items verified during the month should be confirmed. If some areas not covered, comment should be given accordingly. Wherever audit has been conducted on sample basis same should be disclosed in audit report or sample sheet attached with the audit report. Report should be made in the format provided by bank if any.

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BIBILOGRAPHY: WWW.GOOGLE.COM WWW.SCRIBD.COM WWW.CACLUNINDIA.COM WWW.NAUKRIHUB.COM WWW.AUTHORSTREAM.COM WWW.WIKIPEDIA.COM CAs Tax Audit Report. Bank Audit Report.

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