Statutory audit, tax audit and internal audit

A statutory audit is an opinion on whether the financial statements give a true and fair view. It is not a certificate that the business is well run, not a fraud investigation, and not a substitute for the person who writes up the books. The auditor tests, on a sample basis, whether what the accounts say can be supported. Where it cannot, the opinion is modified and the reason is stated in the report. Management remains responsible for the financial statements and for the controls that produced them. That division of responsibility is printed in the report, and it is not a formality.

Form of entity first. Every company incorporated under the Companies Act, 2013 is audited, whatever its size, and whether or not it traded during the year. Limited liability partnerships are audited once turnover or contribution crosses the limit notified under the LLP rules. Firms and proprietorships have no company law audit at all, though a tax audit may still apply to them. Co-operative societies, public trusts and registered societies are governed by their own state or central statute and by their own formats. We confirm the constitution of the entity, its date of incorporation and the limits in force for the year concerned before scoping the engagement.

Section 44AB is worked out on the year's own figures, not on last year's habit. Turnover or gross receipts is computed first, and that computation is where most of the argument sits. Sales returns, discounts, tax collected, scrap, interest, and speculative or derivative turnover are each treated differently. A separate and higher limit applies where cash receipts and cash payments stay within the notified proportion of the total, so the mode of receipt matters as much as the amount. Where audit applies, the report is filed in Form 3CA or Form 3CB with Form 3CD attached. The Income-tax Act, 2025 moves the requirement to Section 63 and consolidates those forms, so the governing law depends on the year audited.

Presumptive taxation under Sections 44AD, 44ADA and 44AE lets eligible taxpayers declare income at a deemed rate and stop maintaining detailed books. The trap is on the way out. Declaring profit below the deemed rate, where total income also crosses the exemption limit, pulls the accounts straight back into audit. Opting out of Section 44AD locks the taxpayer out of the scheme for a run of following years, and audit follows for each of them. The Income-tax Act, 2025 tightens this further by keying the audit trigger to the profit declared rather than to whether the scheme was ever chosen. Both routes are modelled before the return is filed, not after.

Form 3CD is a statement of particulars, and every particular has to be supported from the records. Payments disallowed for want of tax deduction. Cash receipts and payments above the notified limits. Loans and deposits accepted or repaid otherwise than through banking channels. Amounts outstanding to micro and small enterprises beyond the period the MSMED Act allows, which is now a disallowance and not merely a disclosure. Related party transactions. Stock, ratios, and the reconciliation of reported turnover with the GST returns. The clauses change most years, and rows are added and deleted. We work the current form, and we say early which clauses the books cannot presently answer.

Some companies must appoint an internal auditor under Section 138 of the Companies Act, 2013, and the class is fixed by rule. Most businesses that ask for internal audit are not in that class. They ask because the owner has stopped seeing every voucher. The usual triggers are a second location, a first outside investor, a purchase function that no longer reports to the promoter, or a bank asking for stock and debtor statements it intends to rely on. Scope is agreed in writing, cycle by cycle. Procurement, payroll, cash, inventory, receivables. Findings go to the board or audit committee with the owner of each action named against it.

A single entity often carries several audits answering to different authorities. Co-operative societies in Maharashtra are audited under the state co-operative societies law, by an auditor on the approved panel, in a prescribed format. Public trusts and registered societies report to the Charity Commissioner. Charitable and religious institutions claiming exemption file an audit report in the form the Income-tax Rules prescribe for their category, and filing the wrong one of those forms has cost institutions their exemption. Bodies receiving foreign contribution report separately under FCRA. GST requires a reconciliation statement rather than an audit. Each has its own format, its own signatory and its own filing route. All of them are mapped before the first one falls due.

The first request is the ledger, the trial balance, bank statements for the full year, and the previous year's signed accounts with its audit report. Form 26AS, the AIS and the GST returns follow, and are tied back to the books before anything else is tested. Most of the year's findings surface in that reconciliation. What comes after is specific and it is dull. Bank confirmations, stock records as at the year end, fixed asset invoices, loan sanction letters, statutory dues challans, board minutes, and the related party list. The list goes out in one batch, with a date against each item, and it is followed up rather than left with you.

The signed report runs to a page. The file behind it is the work. Audit documentation is itself the subject of a standard, and the test is whether another auditor with no prior connection to the engagement could follow what was done, what was found, and why the conclusion follows from it. That file is what a peer reviewer reads, what NFRA inspects for companies within its scope, and what stands between the auditor and a misconduct proceeding when something later goes wrong. It protects the client too. Where a position was taken on a debatable clause, the reasoning and the evidence sit on file, dated, and can be produced if the return is picked up.

Scope moves with facts, not with size alone. Books that are not closed, or closed in a package nobody has reconciled, add work before the audit can begin. A first year engagement means opening balances are verified rather than accepted. Group entities, foreign remittances, related party lending, inventory held at third party locations, and revenue recognised over time each add procedures. So does a qualification carried forward from the previous year. Reporting on internal financial controls applies to some companies and not to others. The prior year file and the current trial balance are reviewed first, scope is then set in writing, and you are told if it changes.