TAXAJ

All you need to know about Auditing

Definition. Audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organisation.


Description: Audit can be done internally by employees or heads of a particular department and externally by an outside firm or an independent auditor. The idea is to check and verify the accounts by an independent authority to ensure that all books of accounts are done in a fair manner and there is no misrepresentation or fraud that is being conducted.


All the public listed firms have to get their accounts audited by an independent auditor before they declare their results for any quarter.

Who can perform an audit? In India, chartered accountants from ICAI or The Institute of Chartered Accountants of India can do independent audits of any organisation. CPA or Certified Public Accountant conducts audits in USA.

There are four main steps in the auditing process. The first one is to define the auditor’s role and the terms of engagement which is usually in the form of a letter which is duly signed by the client.

The second step is to plan the audit which would include details of deadlines and the departments the auditor would cover. Is it a single department or whole organisation which the auditor would be covering. The audit could last a day or even a week depending upon the nature of the audit.

The next important step is compiling the information from the audit. When an auditor audits the accounts or inspects key financial statements of a company, the findings are usually put out in a report or compiled in a systematic manner.

The last and most important element of an audit is reporting the result. The results are documented in the auditor’s report.

Assurance

Assurance services are an independent review of certain deals, documents or transactions that can prove its reliability, correctness, and validity. Team Taxaj provides its clients with a clear picture of the financial risks and how those risks can be mitigated. The process involves an independent examination to help the client make an informed decision. The focus of our assurance services is to help our clients achieve their desired business goals with transactions that support and boost their business.

Tax Audit Services

Tax Audit is an examination of a business or individual tax affairs to check whether the transactions undertaken by them are as per the Income Tax Act like declaration of all the computable income or are they entitled to certain tax deductions or any tax offsets which they had claimed in their tax return. Our taxation advisory team assist our clients to file their tax audit returns in time.


Our Audit procedure has been designed to comply with Income Tax Act 1961.

Financial Statement Audit

Our approach as an audit firm includes a deep understanding of your business and the industry in which you operate, enabling us to design an effective audit plan. Our procedure has been designed to comply with:

1. International Standards on Auditing

2. Current Statutes, 

3. Indian Accounting Standards,

4. Standards of Quality Control (SQCs),

5. Standards on Auditing (SAs),

7. The guidelines issued by the regulatory board regularly.

Risk Advisory Services

Risk Advisory is a mechanism to help a business identify the potential risk along with a plan to minimize or mitigate that risk. It consists of services designed in a manner to assist an organisation in fulfilling strategic goals by providing ready help to anticipate the risk and meet regulatory compliances requirement. We assist our risk advisory clients on controls, risk, processes, governance and compliance requirements. We support them with the help required to identify potential risk and further manage that risk. We also assist them in dealing with the consequences in cases where risk becomes a reality.

IFRS transition & Implementation Services

IFRS has become the global accounting reporting standard. However, many companies seem unaware or unprepared for the complexities this change represents. Business transformation to IFRS affects almost all the business functions of an enterprise such as Organisation structure, Legal contracts, accounting and finance, taxation, corporate responsibilities, and executive compensation. Conversion to IFRS is a big challenge for companies. At Team Taxaj, we aim to add value to this conversion process and help our clients realise many of the opportunities that this change presents. By assessing the likely impact of this conversion across all the business functions, We assist in development of plans for implementing the necessary changes.

Internal Audit Services

In current scenarios, internal audit is seen and implemented as a key strategic tool for the company. A well-structured internal audit function with its objective to reduce the challenges faced by management, audit committee, and other stakeholders, can add value to the company. We, as an internal audit firm in India, ensure exactly that for our clients.   Internal Audit is a third-party evaluation of the operations of an entity with an objective to improve performance, develop a strategy to manage the risks, maximise the value of the entity, and identify any opportunity of further improvement. Internal Audit is a procedure undertaken by management to get clarity on the effectiveness of the internal controls in place. 

Compliance Management Audit

Every organisation today faces a very complex compliance environment irrespective of its size, where any non-compliance will lead to penalties, fines and more importantly risk of harm to its reputation, in this scenario a well experienced and competent compliance management team comes into play.

We at Team TaxaJ work with our clients to understand the business and industry in which they operate and form an integrated strategy to ensure that all the compliance requirements are fulfilled in due time. This allows the organisation and management to focus on other important areas and not waste time and efforts on complicated compliances.

Information Technology assessment & IT Audit

Information Technology is the backbone of the operations at any company which makes an IT audit a crucial step in maintaining the stability in an organisation. IT audit is an examination of the Information technology infrastructure to assess its effectiveness, performance and if it is aligned with the objective of the entity. It is an important step to ensure that the IT controls are in place and are enough to protect the organisation’s assets, data, and information, or if any further improvement is required.

GST Audit

Audit under GST involves examination of records, returns and other documents maintained by a GST registered person. It also ensures correctness of turnover declared, taxes paid, refund claimed, input tax credit availed and assess other such compliances under GST Act to be checked by an authorised expert.

GST is a trust-based taxation regime wherein a taxpayer is required to self-assess his tax liability, pay taxes and file returns. Thus, to ensure whether the taxpayer has correctly self -assessed his tax liability a robust audit mechanism is a must. Various measures are taken by the government for proper implementation of GST and audit is one amongst them.

Types of GST Audit

Types Performed by When Initiated
Turnover based audit Chartered Accountant or Cost Accountant appointed by the taxpayer If the Turnover exceeds 2 crores^ the taxpayer has to get his accounts & records audited
 Normal audit/ General AuditCommissioner of CGST/SGST or any Officer authorised by him On order of Commissioner by giving 15 days prior notice
 Special Audit A Chartered Accountant or Cost Accountant, nominated by Commissioner On order of Deputy/Assistant Commissioner with prior approval of Commissioner

For businesses with an annual turnover of less than Rs 5 crore, filing of GSTR-9C for FY 2018-19 is waived off.

Turnover-based Audit under Section 35(5) of CGST Act

If the annual turnover of a registered taxpayer is more than Rs. 2 crores^ in a financial year , he is required to get his accounts audited by a Chartered Accountant or Cost Accountant every year. 


A financial year covers the 12-month period beginning from April of a calendar year to March of the next calendar year. 


Special Note: For the purpose of finding out the turnover limit for Financial Year 2017-18, it has been clarified in the government’s press release dated 3rd July 2019. It shall cover the period 1st July 2017 to 31st March 2018 and excludes the first quarter of FY 2017-18. 


^For businesses with an annual turnover of less than Rs 5 crore, filing of GSTR-9C for FY 2018-19 is waived off.

Aggregate turnover is calculated as follows:

Aggregate turnover = Value of all taxable (inter-state and intra-state) supplies + exempt supplies + export supplies of all goods and services

 

The total turnover calculation must be PAN-based, which means that once the turnover under the PAN is more than Rs. 2 crores^ all business entities registered under GST for that PAN will be liable for GST audit for a financial year.

^For businesses with an annual turnover of less than Rs 5 crore, filing of GSTR-9C for FY 2018-19 is waived off.

Items included while calculating turnover:

» All taxable (inter-state and intra-state) supplies other than supplies on which reverse charge is applicable.

» Supplies between separate business verticals.

» Goods supplied to/received from job worker on principal to principal basis.

» Value of all export/zero-rated supplies.

» Supplies of agents/ job worker on behalf of the principal.

» All exempt supplies. E.g. Agricultural produce supplied along with branded ready-to-eat food.

» All taxes other than those covered under GST Eg: Entertainment Tax paid on the sale of movie tickets.

Items excluded while calculating turnover:

» Inward supplies on which tax is paid under reverse charge.

» All taxes and cess charged under Goods and Service Tax like CGST, SGST or IGST, Compensation Cess.

» Goods supplied to or received back from a Job Worker.

» Activities which are neither supply of goods nor service under schedule III of CGST Act.

Compliances for GST Audit:

Qualification of GST Auditor & Eligibility 

Only a Chartered Accountant or a Cost Accountant can perform a GST Audit u/s 35.


Points to Note:

  1. An internal auditor cannot parallel be appointed as a GST Auditor.
  2. The GST Act does not allow a GST practitioner to perform the audit. The power to audit is granted only to a Chartered Accountant or Cost Accountant who is in practice or is an employee of a firm of Chartered Accountants or Cost Accountants. Therefore, a Chartered Accountant must not be registered as a GST practitioner for the purpose of issuing the Audit Report.
  3. Where an organisation or an entity has multiple branches registered under GST in different states/UTs, the total aggregate turnover of all such branches is considered while calculating the threshold limit of Rs. 2 crores^.So, if the cumulative turnover of all the branches exceeds Rs. 2 crores^, then the GST audit is applicable to each of these branches, irrespective of whether the turnover of a particular branch is less than the threshold.In such cases, one can appoint either one dedicated auditor for all branches or separate auditor for each branch. Where multiple branches have different auditors, the Standards on Auditing: SA 299 — Responsibility of the Joint Auditors may apply for the purpose of reporting GST Audit observations & Reporting.


For businesses with an annual turnover of less than Rs 5 crore, filing of GSTR-9C for FY 2018-19 is waived off.

Conducting GST Audit & Issue of GST Audit report

Appointment of GST Auditor:

A proprietor, partner or Board of Directors in case of a Company should appoint a GST Auditor at the beginning of the financial year.

Accounts to be to be reviewed by GST Auditor:

Following are important accounts or records for review:

  • Sales Register
  • Stock Register
  • Purchase Register and Expenses ledgers
  • Input tax credit availed and utilized
  • Output tax payable and paid
  • E-way bills generated during the period under Audit, if in compliance with rules.
  • Any documents that record communications from the GST department relating to the year.

Forms for Annual return and GST Audit:

  

Type of taxpayerForm to be filed
Whether or not applicable to GST Audit
A Regular taxpayer filing GSTR 1 and GSTR 3BGSTR-9
A Taxpayer under Composition SchemeGSTR-9A
E-commerce operatorGSTR-9B
Applicable for GST Audit
Taxpayers whose turnover exceeds Rs. 2 crores^ in FYGSTR-9C

Review of comments by GST Auditor:

The Auditor must report any tax liability pending for payment by the taxpayer, identified through the reconciliation exercise and observations made on GST audit. Taxpayers can settle taxes as recommended by the auditor in Form DRC-03.

Submission of GST Audit report & Annual return:

The finalized GSTR-9C can be certified by the same CA who conducted the GST audit or it can also be certified by any other CA who did not conduct the GST Audit for that particular GSTIN.

The following must be reported and certified by the GST Auditor or the certifier:

  • Whether or not all the requisite accounts or records are maintained.
  • Whether or not the Financial Statements are prepared as per the books of accounts maintained at the principal place of business or additional place of business of the taxpayer.
  • Certify the accuracy of information in GSTR-9C.
  • To list down the audit observations or reservations or comments, if any.

^For businesses with an annual turnover of less than Rs 5 crore, filing of GSTR-9C for FY 2018-19 is waived off.

Read our article on Contents of GSTR-9C for further details.Contents of GSTR-9C for further details.

Documents to be furnished by the taxpayer:

  • Audited financial statements (which is PAN-based)
  • Annual return in form GSTR-9 (for every GSTIN)GSTR-9 (for every GSTIN)
  • Certified reconciliation statement in Form GSTR-9C, reflecting reconciled values of supplies and tax amounts declared in GSTR-9 compared to audited financials in Part-A, along with the Audit report in Part-B.GSTR-9C, reflecting reconciled values of supplies and tax amounts declared in GSTR-9 compared to audited financials in Part-A, along with the Audit report in Part-B.

Due dates for submission of GST Audit report:

GSTR-9 and GSTR-9C are due on or before 31st December* of the subsequent fiscal year.

Special Note: *GSTR-9 filing for businesses with turnover up to Rs 2 crore^ made optional for FY 2017-18 and FY 2018-19.

Penalty for not submitting GST Audit report:

There is no specific provision. Hence, it is subject to a general penalty of Rs.25,000.

^For businesses with an annual turnover of less than Rs 5 crore, filing of GSTR-9C for FY 2018-19 is waived off.