Financial auditing is the process of examining an organization’s (or individual’s) financial records to determine if they are accurate and in accordance with any applicable rules (including accepted accounting standards), regulations, and laws.
External auditors come in from outside the organization to examine accounting and financial records and provide an independent opinion on these records. Law requires that all public companies have their financial statements externally audited.
Internal auditors work for the organization as internal employees to examine records and help improve internal processes such as operations, internal controls, risk management, and governance.
A person carrying on Business: If total sales, turnover or gross receipts are more than Rs. 1 crore (From FY 16-17, Rs. 2 crores)
A person carrying on Profession: If gross receipts are more than Rs. 25 lakhs (From FY 16-17, Rs. 50 lakhs)
A person covered under presumptive income scheme section 44AD: If income of the business is lower than the presumptive income calculated as per Section 44AD and the person’s total income is more than the minimum income which is exempt from tax.
A person covered under presumptive income scheme section 44AE: If income of the business is lower than the presumptive income calculated as per Section 44AE.
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Penalty as per Section 44AA
If the tax payer fails to maintain accounting records as per the requirements of Section 44AA, a penalty may be levied under section 271A. The maximum penalty that can be charged is Rs. 25,000. However, if the tax payer can prove there is a reasonable cause for failure to maintain accounting records – such penalty may not be levied.
Penalty as per Section 44AB
If the tax payer fails to get the accounting records audited or furnish audit report as per the requirements of Section 44AB, a penalty may be levied under section 271B. The minimum penalty that can be charged is 0.5% of the total sales, turnover or gross receipts. The maximum penalty is Rs 1,50,000. However, if the tax payer has a reasonable cause for failure to get an audit done – such penalty may not be levied.
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