Core service
Audit — Statutory & Internal
An audit is an opinion, and an opinion is only worth what the evidence behind it will bear. The work is the evidence — which is why an audit that finds nothing is not the same as an audit that looked.
Audit is not a service performed for the person paying for it. A statutory audit is performed for the members of the company, and the report is addressed to them; a tax audit is performed because the law requires the return to be accompanied by one. That distinction shapes everything about how the work is done — what can be accepted on management’s word, what has to be verified independently, and what has to be reported even where nobody wants it reported.
The Standards on Auditing issued by the Institute govern how the work is planned, what evidence is sufficient, how sampling is done, how estimates and related party transactions are examined, and what has to appear in the report. They also require the working papers to demonstrate that the work was actually done — which is the practical reason an audit cannot be compressed into the days before a filing deadline.
Independence is not a formality either. There are things this firm cannot do for a client it audits, and where that line is reached it is said at the outset rather than worked around. A firm that keeps your books cannot also audit them.
Statutory audit
- Audit of companies under the Companies Act, 2013
- Audit of LLPs where the prescribed limits are crossed
- Audit under the applicable accounting and auditing standards framework
- Planning, risk assessment and determination of materiality
- Verification of assets, liabilities, income and expenditure
- Examination of related party transactions and their disclosure
- Reporting on internal financial controls, where applicable
- Reporting on the matters the Act and the order require to be reported
- Audit report, and the management representations supporting it
Tax audit and other attestation
- Tax audit under the income tax law, and the statement of particulars
- Reconciliation of the tax audit particulars to the books and returns
- Reporting of disallowances, deemed income and specified payments
- Certification required by banks, authorities and counterparties
- Attestation of financial statements for lenders and regulators
- Audit of trusts, societies and other non-corporate entities
- Stock, receivables and other specific-purpose audits
Internal audit and controls
- Internal audit of processes, transactions and compliance
- Purchase to payment, order to receipt and payroll cycle reviews
- Physical verification of stock and fixed assets
- Review of the design and operation of internal controls
- Segregation of duties, approval limits and delegation review
- Testing of compliance with the entity’s own policies
- Reporting to management or the audit committee, with agreed action points
- Follow-up on the previous period’s observations
When this applies
Situations this covers
Your company was incorporated this year
Statutory audit applies from the first year, including where there has been no activity at all, and the first auditor has to be appointed within a defined period of incorporation.
Turnover has crossed the tax audit threshold
The audit report has its own due date ahead of the return, so applicability is established during the year rather than discovered when the return is being prepared.
The books are not ready and the deadline is close
An audit cannot be performed on records that do not exist yet. Where the position is that bad, it is better said early — the books come first, and the consequence of a late filing is quantified rather than gambled on.
The previous auditor has resigned or is not continuing
A change of auditor carries its own procedure, its own communication between the outgoing and incoming auditor, and its own filing with the Registrar.
You want to know whether the controls actually work
Internal audit answers a different question from statutory audit — not whether the accounts are true and fair, but whether the process would catch it if they were not.
A lender or a buyer wants figures they can rely on
Certification and attestation for a third party carry their own responsibility, and what can be certified depends entirely on what can be verified.
Method
How the work runs
- 01
Establish scope, and independence
Which audit, for which entity and year, under which framework — and whether this firm is eligible to accept it given the other work it does for you. That question is answered before the engagement letter, not after.
- 02
Plan the audit before beginning it
The business, its risks and its controls are understood first, materiality is set, and the areas that warrant attention are identified. A plan built from last year’s file is not a plan.
- 03
Test what the evidence will support
Samples are selected on a stated basis, balances are verified independently where they can be, and management’s explanations are corroborated rather than accepted.
- 04
Raise observations while they can be answered
Findings are put to management as they arise, so that corrections are made in the accounts rather than argued about after the report is signed.
- 05
Document, then report
Working papers are completed to support each conclusion, and the report is drafted to say what the evidence supports — with a qualification where one is warranted.
- 06
Close the loop
Observations that are not accounting matters go to management in writing, and internal audit points are followed up in the next cycle rather than repeated.
Questions
Commonly asked
General information on procedure. It is not advice on any particular matter.
What is the difference between statutory audit, tax audit and internal audit?
They answer different questions for different readers. A statutory audit asks whether the financial statements give a true and fair view, and reports to the members of the company. A tax audit asks whether specified particulars relevant to the income tax computation are correctly stated, and reports to the tax authorities through the return. An internal audit asks whether the entity’s own processes and controls are working, and reports to management or the audit committee. One entity can require all three, and they are not substitutes for each other.
Can you audit us if you also keep our books?
No. Writing up the accounts and then auditing them would mean examining our own work, and the Institute’s independence requirements do not permit it. Where a client wants both from this firm, one of them goes elsewhere — usually the audit, because the bookkeeping is the more continuous relationship. This is settled at the outset, and it is one of the few points on which there is no arrangement to be reached.
When does a tax audit become applicable?
It is triggered by turnover or gross receipts crossing the prescribed threshold, and separately where a person who had opted into presumptive taxation declares income below the presumptive rate. The thresholds differ for business and profession and are relaxed where receipts and payments are substantially digital. Because the report carries its own due date ahead of the return, applicability is worth establishing during the year rather than after it closes.
Our company has had no activity. Do we still need an audit?
Yes. Statutory audit under the Companies Act applies from the first year regardless of turnover, and a dormant company with nil figures still requires audited accounts and an annual filing. The audit is short, but it is not optional, and a company that skips it accumulates the same additional fee and exposure as one that trades.
How long does an audit take?
It depends almost entirely on the state of the records. Where the books are closed, reconciled and the schedules exist, the fieldwork is a matter of days. Where the ledger is still being written up, the audit cannot start — and the answer is to fix the books rather than to compress the audit, because a report signed without the work behind it is worth nothing to anyone and is a problem for the person who signed it.
What does it cost?
Professional fees depend on the entity, the volume and complexity of transactions, the number of locations, and the state of the accounting records. Scope and the basis of fees are agreed in writing before work begins. Fee rates are not published here.
Is an audit falling due?
An audit is easiest where the books have been closed monthly and the schedules already exist. The time to think about the audit is the year before it, not the week of it.
Related services
- Accounting & BookkeepingBooks of account maintained to statutory standards, with periodic financial statements.
- Income TaxTax planning, advisory and return filing for individuals, firms and companies.
- Business Registration & ROCFormation of proprietorships, partnership firms, LLPs and companies, the registrations that follow, and ongoing Registrar of Companies compliance.
- Business & Tax AdvisoryAdvisory on business structure, transactions and the tax consequences of proposed decisions.