It is always beneficial for any foreign executive who is operating in India to have general understanding about the audit procedures used in the country. It is important to be updated about any changes in rules and regulations regarding the audits performed in a company in the long run. Here we have thoroughly explained and provided a detailed overview on the different types of audit conducted and the kind of audit reporting done in India. Before, we know about the audit reporting, it is important to know the types of audit processes to be performed in a company. Audits have been broadly classified in two categories. These are as follows-
- Internal Audits: When the internal management bequests to check the company’s financial health and a complete analysis of the efficiency and effectiveness of the organization’s operations, then Internal Audit are conducted. The Internal Audit Service has to be provided by company’s internal audit staff or unit or by an independent external party.
- Statutory Audits: These are conducted for reporting the details of financial and accounts statement of a company to the government or to relevant statutory bodies. Statutory audits are performed as per the prescribed and mandated provisions and laws given in the statutes. It has to be conducted by qualified auditors called as statutory auditors that work independently in the company being a part of external party. The statutory audit reporting has to be done in accordance with the laid format by the relevant departments in India. There are two types of statutory audits. These are as follows-
- Tax Audits: Section 44AB of the Income Tax Act, 1961 states the requirement of the tax audits to be mandatorily conducted for each and every person and business firm whose annual turnover exceeds Rs.1 Crore and for every professional having gross salary receipts exceeding Rs.50 Lakhs in the previous financial year. The section states that these people must have their accounts audited by a Chartered Accountant.
- Company Audits: The Companies Act, 2013 states the provisions related to company audits under the statutory audit. Company audits are to be conducted by all the business and company irrespective of its turnover or nature andd type of business. The companies are required to get their accounts audited by an auditor appointed in the company’s Annual General Meeting on annual basis.
Once the audits are completed, the auditor is required to prepare a detailed report known as audit report. The whole preparation process is called the audit reporting. This report contains the fairness of the company’s annual accounts and financial statement along with the view points and recommendations of the auditor. Once the audit reporting is completed by the auditor, he/ she has to provide and express their viewpoint or opinion in one of the following ways-
- Qualified opinion: A qualified opinion is expressed by the auditor when they feel that the company’s financial statements as a whole contains material misstatements that are not pervasive in nature. This means that the material misstatements and information related to them does not have a profound effect on the decisions of the people using the financial statement of the company.
- Unqualified opinion: An auditor provides this type of opinion in the audit reporting when they conclude that the company has shown and presented its financial statements and accounts truly and fairly as per the framework of the financial reporting. The following points have to indicated through an unqualified opinion in audit reporting-
- Compliance of the financial statements with the requirements of the statutes and regulations.
- Application of Generally Accepted Accounting Principles (GAAP) while the preparation of the Financial statements in a consistent manner.
- Properly determining and checking the changes in the application methods and accounting principles in the preparation of the company’s financial accounts and statements.
- Adequacy of disclosed matter and material that have relevancy with the financial information and its presentation.
- Disclaimer of opinion: A disclaimer of opinion is included or expressed in the audit reporting whn the auditor is unable to gather appropriate Statutory or Internal Audit Evidence due the limitations on the scope of the material matter and its pervasiveness along with possible effects on the same.
- Adverse opinion: The auditor issues an adverse opinion in the audit reporting when the auditor’s scope of work is limited or have certain limitations. It can be isssued in situations where the management and the auditor disagree with each other on various matter related to the selected accounting policies and its acceptability, application method of the policies etc.