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Income Tax Audit

Tax Audit in India

Section 44AB specifies that certain categories of individuals or businesses require tax audits by a chartered accountant in order to ensure compliance with the laws and to keep fraudulent tax practices in check.

What is the Definition Tax Audit?

Under Section 44AB of the Income Tax Act, 1961, persons involved in certain professions or exceeding a certain amount in business have to get their account books audited by a chartered accountant is known as Tax Audit. Audit refers to inspection or scrutiny of accounts, in order to ensure compliance with the Income Tax Act and other related laws, and to check fraudulent practices.

An Income Tax Audit Limits for FY 2022-23 (AY 2023-24) A business person whose gross receipts/turnover/sales for the previous financial year is more than Rs. 1 crore. It is now no longer relevant to the person, who opts for presumptive taxation scheme beneath Neath segment 44AD his general income or turnover would not exceed Rs. 2 crores. A professional whose gross receipts for the previous financial year is more than Rs. 50 lakhs. Persons covered under Sections 44AD, 44AE, 44AF, 44BB and 44BBB, who are declaring lower profits from business than what is estimated.

As per the latest announcement, the persons who carry out most of the transactions (95% in this case) online, that is through digital transactions, will be eligible for an increase in the limit for tax audit.

Different Types of Tax Audits

There are three types of auditing process. They are given below:

Field audit:
Office audit:
Correspondence audit:

INTERNAL AUDIT

What Is an Internal Audit?

Internal audits evaluate a company’s internal controls, including its corporate governance and accounting processes. These types of audits ensure compliance with laws and regulations and help to maintain accurate and timely financial reporting and data collection. Internal auditors are hired by companies who work on behalf of their management teams. These audits also provide management with the tools necessary to attain operational efficiency by identifying problems and correcting lapses before they are discovered in an external audit.

Types of Internal Audits

Compliance Audit
Internal Financial Audit
Environmental Audit
Technology/IT Audit
Performance Audit
Operational Audit
Construction Audit
Special Investigations
Internal Audit Process

Internal auditors generally identify a department, gather an understanding of the current internal control process, conduct fieldwork testing, follow up with department staff about identified issues, prepare an official audit report, review the audit report with management, and follow up with management and the board of directors as needed to ensure recommendations have been implemented.

Step 1: Planning

Step 2: Auditing

Step 3: Reporting

Step 4: Monitoring

Importance of Internal Audits

Some may think internal audits are not as valuable as external audits. After all, a company may hand-pick its own internal audits who do not have full independence from the company. However, there are many ways internal audits provide value to the company and external parties:

Management can be more efficient about what to explore.
Internal audits may save companies money

The company enhances its control environment.
Internal audits may make companies more efficient.
Internal audit reports give management a head start to make corrections.
Certain departments may need enhanced oversight.

INVENTORY AUDIT

In general, a inventory audit means physical verification of the inventory/stock. It can involve the valuation of the stock as well, but it usually depends on the scope and terms of the term of the engagement letter of the assignment. When heading forward, it is very crucial to keep in consideration the sole purpose for which the audit is being conducted because the different audits may have a different approach which would ultimately depend on the ultimate objective of the organization.

In other words, a stock audit is a statutory process that every company/business should get performed at least once in a particular financial year. As far as the stock audit procedure is concerned, the inventory audit process in India involves physical counting of different inventories and presenting the premises and verifying the same with computed inventory maintained by the company. The reason and purpose behind executing this are to correct the discrepancies present in the book stock when compared to physical stock bypassing necessary adjustment entries. VB Associates is among the best stock auditors in India, providing independent audit services.

What is a Stock audit?

Let us understand few reasons to perform stock audit in India

To update the opening stock details in Shopper.
To identify the discrepancy between the book stocks, also called computed stock and physical stock.
To update the actual physical stock as book stock.
To ensure the adequate preservation and handling of stocks.

Benefits of inventory Audit

Direct impact on costs and bottom line
Prevent pilferage and fraud
Identifies slow-moving stock, obsolete stock, deadstock and scrap
Third-party independent opinion, especially for agent warehouses
Identifies the gap in the current inventory management process
Enable accurate valuation of inventory
Identification of slow-moving stock, obsolete stock, deadstock and scrap
Avoidance of pilferage and fraud
Instant information about the value of inventory
Cost reduction and bottom-line
Reduction in gaps in the present inventory management process.

COST AUDIT

A cost audit represents the verification of cost accounts and checking on the adherence to cost accounting plan. Cost audit ascertains the accuracy of cost accounting records to ensure that they are in conformity with cost accounting principles, plans, procedures and objectives.^[1] A cost audit comprises the following;

Verification of the cost accountingrecords such as the accuracy of the cost accounts, cost reports, cost statements, cost data and costing technique
Examination of these records to ensure that they adhere to the cost accountingprinciples, plans, procedures and objective
To report to the government on optimum utilisation of national resources

Objectives of cost audit

Prospective objective: Under which cost audit aims to identify the undue wastage or losses and ensure that costing system determines the correct and realistic cost of production.
Constructive objectives: Cost audit provides useful information to the management regarding regulating production, economical method of operation, reducing cost of operation and reformulating cost accountingpl
Other objectives:

The basic objective of cost audit is to ensure that the cost of production as well as cost of sales includes only those factors which are absolutely necessary and that those factors are used in the most efficient way.

To verify that cost accounts/records are accurate.
To detect all errors or frauds in cost records.
To introduce some sort of internal audit with a focus on costs to reduce the work of financial auditor.
Cost system must be different for different objectives and the cost auditor designs a system which works best and quickest.
To see that the organisation maintains proper cost books, accounts and records either required by law or otherwise as a managerial decision.
To verify that the basic principles of cost accountancy or related rules framed thereto to implement certain statutory provisions are properly carried out in maintaining cost accounts in the right manner.
To report on the optimum utilisation of national resources, to the government.

Types of Cost Audit

Cost audit on behalf of management
Cost audit on behalf of a customer
Cost audit on behalf of government
Cost audit by trade association
Statutory cost audit
Circumstantial cost audit
Retention price fixation
Cost variation within the industry
Inefficient management
Tax assessment
Trade bargains and dispute
Cost audit under statute

Advantages of Cost Audit

There are a number of advantages of cost audit and they are mentioned below briefly.

The features of cost audit help it to point out any wastage for the company.
The importance of cost audit is there as it points out the drawback in the production process of a company.
The stock value and worth of inventories can be integrated easily by cost auditing.
Proper cost auditing ensures effective staff management and tracking the functions of a staff auditor.
One of the other advantages of cost audit is to mark the inefficiency of staff or processes that can decrease the profit of the company.

Special Audit

We provide special audit like cash, documentation and Branch based on the management request.