During an audit, the accounting records of the company are examined in order to determine whether they are correct and if their functions are legal. Choosing a tax audit over a statutory audit is often confusing for people. Tax audits are conducted under the Income Tax Act, while statutory audits are performed under the Company Act of 2013.
Tax audits and statutory audits defined
- Audit of the statuary
A statutory audit is considered a mandatory audit by the Indian judiciary. A statutory audit is conducted by a corporate selector in order to maintain the legal accounting records of the company. Companies Act 2013 outlines the appointment of auditors, removal of auditors, remuneration, and rights and duties of auditors. As the auditor performs the audit, he/she will apply the audit to the organization based on the guidelines provided by law. Companies can appoint the auditor at the annual meeting of the company by getting its shareholders’ approval. Under the Companies Act of 1956, registered colonies are also allowed to hire chartered accountants. In that case, they also have authority regarding the remuneration of the auditor. Upon preparing the final statements of the company’s accounting records, the company can hire such a person. Upon completion of the audit, the statutory auditor will submit his report. This report will contain his personal opinion as well as a fair view of the accounts. According to the company act, the financial statements in the audit must adhere to the file it returns
- An audit of your taxes
The purpose of a tax audit is to find out and audit the accounts of the taxpayer. This audit is also performed by a chartered accountant. Section 44AB is related to this audit. The auditor is required to express his thoughts and opinions regarding the audit report. The Income Tax Act of 1961 specifies that a tax audit is a mandatory audit. However, the Audit is subject to a condition. The Assess must be defined by the Income Tax Act. An assesse generally engages in a business or profession for the purpose of earning a profit. Keeping an account record of his business is also essential. The Income Tax Act considers profits as subject to tax, so there could be losses in that operation as well. The Income Tax Act details a tax audit in chapter V. In order to conduct a tax audit, the company must have a turnover of more than Rs 1 crore and a gross receipt of at least Rs 25 lakhs. The assessed can easily choose for performing an audit of its accounts if the turnover and gross receipts exceed the aforementioned limit. However, even when the company’s income is less than the taxable amount, the company can choose to undergo a tax audit. The taxable income is assessed by the auditor through the provisions of the Act.
There Are Differences in Detail Between the Two Audits
- Tax audits are also compulsory audits if a company is worth a certain amount of turnover and gross receipts. Statutory audits are mandatory according to law.
- Companies may hire Chartered Accountants to perform tax audits on behalf of the company; external auditors can perform statutory audits.
- Section 143 of the Companies Act 2013 governs statutory audits, whereas Section 44AB of the Income Tax Act of 1961 governs tax audits.
- Listed companies are subject to statutory audits under the Companies Act of 2013. As an alternative, companies, limited liability companies, partnership firms, individuals, and professionals who exceed the threshold limit for turnover or gross receipts may choose to undergo a tax audit.
- In order to perform a Statutory Audit, there is no requirement to have a turnover or gross receipt threshold. It is compulsory for every company, regardless of their turnover. On the other hand, tax audits are mandatory for organizations whose annual turnover exceeds one crore and gross receipt exceeds 25 lakhs.
- Companies must conduct statutory audits within six months of the end of each financial year. However, they must convene a general meeting with company officials and shareholders before beginning the audit. The Income Tax Department, on the other hand, requires companies and individuals to conduct a Tax Audit within 30th September of each financial year and file the Tax Audit Report with the department.
Non-compliance with a statutory audit may result in a fine of up to $5,000. Officers who fail to comply with the audit can be fined between $10,000 and $1,000,000. Tax audits may result in penalties of 0.5% or higher of total sales, gross receipts, or turnover, and a minimum of $150,000 if paid in cash