The relevance and benefits of internal auditing, statutory auditing, and tax auditing

Internal inspection

Internal auditing is a procedure that includes a risk assessment of an organization, evaluation system control, and corporate governance processes. Internal auditors collaborate with management to assess processes and identify inadequacies within the organization. The errors discovered are rectified before they become major issues in the future.

Also Read: Income Tax Return Filing

An internal auditor is a specialist in internal auditing who has extensive experience working on the operations of a company. The goal of an organization is reached with the assistance of an internal auditor by implementing a disciplined, efficient approach to assess and develop the effectiveness of risk management controls. Organizations use internal auditors like these to undertake their internal auditing. Internal auditing works diligently on financial reporting, compliance with rules and regulations, fraud investigation and deterrent, and asset protection.

What are some of the benefits of internal auditing?

• Internal auditing is carried out impartially and objectively. Internal auditors’ “independence” allows them to render an unbiased judgment on the business’s fair conduct. 
• Internal audits are intended to meet the objectives of management by providing constructive recommendations in areas such as regulatory compliance and resource utilization.
• Risk management enables managers to effectively manage risk and other related concerns. These improve an organization’s ability to create moral value.
• Internal audit strengthens financial integrity and reliability while also establishing a monitoring system.
• Enhances the efficiency of the company’s activities
• A proper accounting system is kept up to date.

Audits required by law

The statutory audit is required by law in India. Many audits are conducted in India under the Income Tax Act and the VAT Act to comply with numerous decree requirements. In India, statutory audit refers to an audit conducted under the Companies Act, in which the auditor reports to the company’s shareholders. The goal of a statutory audit is to guarantee that accounting records are accurate and reliable. The legislation assigns the auditor’s appointment, compensation, and responsibilities, as applicable to the organization.

The statutory audit is carried out by an external auditor. The statutory auditor offers his opinion on the fair values of the company’s final accounts in his reports. He also acknowledges that the financial statements are prepared in accordance with the act’s requirements.

In a General Meeting, shareholders appoint Statutory Auditors for a maximum term of six years. They may be re-elected by the shareholders when a certain period of time has passed.

A statutory audit provides the following advantages:

• It ensures that the management’s statutory responsibilities are fulfilled flawlessly.
• The dependability of the published financial statement is improved by statutory audit.
• It ensures the effectiveness of internal control.
• The statutory audit assures management that non-statutory requirements, such as Corporate Governance, must be followed.
• When a firm’s internal controls are inadequate, the statutory auditor will make recommendations for improvement, which will protect the company from risk and improve its performance.

Audit of Taxes

The purpose of a tax audit is to verify the financial information reported on a person’s tax return. According to the Income Tax Act 1961, it is obligatory for the following persons to have their business or profession accounts audited by a Chartered Accountant by September 30 each year.

• When a profession’s gross receipts exceed Rs.25 lakhs in any of the prior years.
• When a company’s gross receipts, total sales, and turnover exceed Rs.100 lakhs in any of the prior years.
• A Chartered Accountant does a Tax Audit mostly for Assessees.

Office audits, random audits, field audits, and correspondence audits are the several types of tax audits.

A tax audit is important and undertaken to examine the habits of taxpayers; it determines how their returns are filed, as well as how certain entries are made for statistical purposes by the company. The IRS National Research Program is in charge of this activity. Returns are chosen at random with the help of this programme. These returns, on the other hand, are thoroughly scrutinized for legal conformity.

Benefits of a Tax Audit

• You will not be charged anything if you demand a tax audit outcome. If you seek the help of a tax attorney, which is usually not advised in ordinary and uncomplicated circumstances.
• It may delay the audit tax bill for a few months, giving the person time to raise funds to settle his tax debt.
• Tax audits typically result in tax savings, albeit they may not always result in case victory.

Suggested Read: Income tax Planning