Audit Services
Internal audit refers to an independent service to evaluate an organisation’s internal controls, its corporate practices, processes, and methods. An internal audit helps in securing compliance with the various laws applicable to an organisation. The Companies Act 2013 mandates (or recommends) internal audits for certain companies in India. These are independent assessments by qualified professionals who evaluate a company's internal controls, risk management, and overall governance.
Internal Audit
i. As per the provisions of Section 138 of the Companies Act, 2013, with rule 13 of the Companies (Accounts) Rules, 2014, specific organizations or companies have an internal audit applicability under the Companies Act 2013. Below, we have given those companies that must appoint an internal auditor,
ii. All Listed Companies: Every company listed on a stock exchange in India is required to have an internal audit function.
iii. Unlisted Public Companies: Unlisted public companies meeting any of these criteria during the previous financial year also need an internal audit: Turnover of ₹200 Crore or more. Paid-up share capital of ₹50 Crore or more. Outstanding loans/borrowings exceeding ₹100 Crore from banks/financial institutions at any point. Outstanding deposits exceeding ₹25 Crore at any point.
iv. Internal audit applicability for Private Companies: Private companies meeting any of the following criteria in the preceding financial year can do the internal audits: Turnover of ₹200 Crore or more. Outstanding loans/borrowings exceeding ₹100 Crore from banks/financial institutions at any point.
Statutory Audit
Statutory audits are mandatory for all companies registered under the Companies Act of 2013 in India, regardless of their size or turnover. The purpose of a statutory audit is to ensure that a company's financial statements are accurate and provide a true representation of its financial situation.
Here are some companies that are required to undergo a statutory audit:
• Every listed company
• Every unlisted public firm with a paid-up share capital of at least ₹10 crore
• Every private enterprise with a paid-up capital of at least ₹50 crores
Companies that do not comply with statutory audit requirements may face fines ranging from INR 25,000 to INR 500,000. Officers in default may face imprisonment of up to one year, or a fine of INR 10,000 to INR 100,000, or both.
Stock Audit
Stock audits in India are applicable in the following circumstances:
• Bank borrowal accounts
• Stock audits are applicable to borrowal accounts with working capital limits of ₹3 crore or more, where the primary security is stock or book debts.
Private companies
Stock audits are applicable to private companies that meet any of the following criteria:
• Gross receipts or revenue of more than ₹10 crore in the financial year
• Paid-up share capital plus reserves of more than ₹1 crore
• Holding or subsidiary of a public listed company
• Borrowings of more than ₹1 crore throughout the financial year
• Banker's credit facilities
• Bankers hire chartered accounting firms to conduct stock audits when the credit facilities exceed a predetermined threshold limit, which is usually over ₹5 crore
Stock audits help prevent fraud and pilferage, provide accurate inventory valuation, and reduce gaps in inventory management.
Revenue Audit
A revenue audit is a systematic examination of an organization's revenue cycle to ensure that revenue is accurately recorded, recognized, and reported in compliance with applicable accounting standards and regulations. It focuses on the processes and controls related to sales, collections, and other sources of income.
Objectives of a Revenue Audit
• Accuracy and Completeness: To verify that all revenue earned has been recorded and that there are no omissions or errors.
• Proper Cut-off: To ensure that revenue is recognized in the correct accounting period.
• Valuation: To confirm that revenue is measured and recorded at the appropriate amounts.
• Compliance: To ensure compliance with accounting standards (like Ind AS) and relevant regulations.
• Internal Controls: To assess the effectiveness of internal controls over the revenue cycle.
• Fraud Detection: To identify any potential fraud or irregularities related to revenue.
Expenditure Audit
An expenditure audit is a systematic review and examination of an organization's spending activities. It aims to ensure that expenses are legitimate, necessary, accurately recorded, and in compliance with relevant policies, procedures, and regulations.
Objectives of an Expenditure Audit
• Legitimacy: To verify that all expenses are incurred for valid business purposes.
• Authorization: To ensure that expenses are properly authorized by the appropriate personnel.
• Accuracy: To confirm that expenses are recorded accurately and in the correct accounting period.
• Compliance: To ensure compliance with internal policies, accounting standards, and relevant regulations.
• Efficiency: To identify opportunities for cost savings and improved efficiency in spending.
• Fraud Detection: To detect any instances of fraud, waste, or abuse related to expenses.