Which Audits does my company require to undergo?

What is an audit?

Audit is an appraisal of the area under audit. It’s an independent assessment throwing light on the compliant nature of the company and also states the non compliances. The various types of audits are as below –
Statutory audit under new Companies Act? This is a mandatory yearly audit for all companies under the Act.
An auditor (chartered accountant or firm of chartered accountants) is required to be appointed by a company in the first annual general meeting of the company. The auditor can hold office till the sixth annual general meeting of the company (means for five years).
The auditor will make a report to the members of the company on the accounts and financial statements examined by him. Auditor needs to comment whether the financial statements give a true and fair view of the state of company’s affairs as at the end of the financial year. If there are any negative remarks, the auditor must state these with reasons.

Tax audit under Income Tax Act? This is a yearly audit and is mandatory for the below cases –

Person carrying on business if his total sales, turnover or gross receipts exceeds one crore rupees in any previous year or
Person carrying on profession if his gross receipts in profession exceed twenty five lakh rupees in any previous year or
Person carrying on specified business (plying, hiring, leasing of goods carriages, exploration of mineral oils and foreign companies in civil construction) if he claims to have income lower than specified limits or
Person computing profits and gains of business on presumptive basis if he claims to have income lower than specified limits.
The above person shall get his accounts audited by a chartered accountant before the specified date and furnish the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. This report is now electronically filed along with the return of income.
Failure to comply with tax audit provisions may attract a penalty of a sum equal to 0.5% of the total sales, turnover or gross receipts or a sum of Rs 1,50,000 whichever is less.

Cost audit?

Where the Central Government is of the opinion that the cost records of such class of companies engaged in the production of such goods and providing such services as may be prescribed, is required to be audited, then it can demand for the cost audit to be conducted (a yearly requirement). Some of the notified sectors where cost audit applies are businesses of drugs and pharma, medical devices, telecom services, power, roads and infrastructure, steel, coffee, tyres and tubes, paper and more.
The companies operating in the above sectors need to get a cost audit conducted for a previous year if their turnover has crossed a specified limit (fifty crore for some industries, hundred crore for some and other conditions) for the immediately preceding financial year.
The companies operating in the above sectors need to maintain cost records for a previous year if its turnover crosses thirty five crore during the immediately preceding financial year.
The cost audit can be done by a cost accountant in practice.
Statutory auditors cannot be appointed as cost auditors.
The company is punishable with a fine of not less than Rs 25,000 but which can extend to Rs 5,00,000 if the cost audit provisions are contravened. Every officer of the company in default shall be punishable with imprisonment for a term which may extend to 1 year or fine which will not be less than Rs 10,000 but can extend to Rs 1,00,000 or with both.

Secretarial Audit?

This is a new yearly requirement under the new Companies Act.
Every listed company and other class of companies as maybe prescribed are required to annex to the Boards report, a Secretarial Audit Report.
This needs to be conducted by a practicing company secretary in respect of the secretarial records of the company.

Internal Audit?

Under new Companies Act, certain classes of companies shall be required to appoint an internal auditor or a firm of internal auditors. The classes specified are – every listed company, every unlisted public company fulfilling certain conditions of paid up capital, turnover, loans and deposits, every private company having a turnover of two hundred crore or more during the preceding financial year or having outstanding loans or borrowings of one hundred crore or more at any point during the preceding financial year.
Internal auditor may or may not be an employee of the company, maybe a chartered accountant, a cost accountant or any other professional.
The audit committee of the company or the Board shall with the internal auditor formulate the scope, functioning, periodicity and methodology for conducting the internal audit.
The audit is undertaken of the functions and activities of the company.

Value added tax (VAT) audit?

Different states have their own laws and procedures of VAT.
Under Maharashtra VAT (MVAT), VAT audit is applicable to a dealer who is liable to pay value added tax and his turnover exceeds one crore during the financial year.
Practising chartered accountant or cost accountant alone can be appointed as auditor under MVAT.
The responsibility of submitting the audit report to the sales tax department is of the dealer and not of the chartered accountant.
For non compliance, dealer can be charged a penalty equal to 0.1% of turnover of sales or purchases and can be prosecuted for imprisonment for 6 months.
VAT is calculated and paid by the tax payers through their periodical returns. An auditor verifies the returns independently in minute details by going through the books of accounts, Audited Financial Statements and also by analyzing and interpreting the provisions of the State VAT Laws. A certification at the end of audit, as to whether there was any under-assessment made by the dealer requiring additional payment or whether there was any excess payment of tax warranting refund to the tax payer is provided by the auditor. The under-assessment or over assessment could be cause of various reasons, the most probable reasons are non receipt of forms, sales or purchase returns, wrong adjustments for credit notes received or issued and discounts.