Audit of Company Accounts

What does the term Audit mean?

The term "Audit" generally means to examine something thoroughly. Auditing a company is a process of doing an independent inspection of the financial Information of that company/organization, whether profit-oriented or not profit-oriented, irrespective of its legal form, status, or size. This independent inspection is conducted to express an opinion about the Company's financial statements and the feasibility of relying on the statements for any stakeholder.

Need For Company Audit

A company has to prepare its financial statements once it closes its accounts every financial year. The Company is responsible for preparing the statements as per books of accounts depicting a true and fair view of the affairs of the Company.

As stakeholders view these statements for decision making, the financial statements must give a true and fair view of the Company's financial position. The financial statements are inspected by an external independent team, known as the auditing team, to verify this objective. The statutory auditor inspects the financials and gives his opinion as to what extent the financials provide a true and fair view. The importance of auditing is mainly seen in case of errors in the company accounts. If the company bookkeeping has not been up to date or in order, an auditor can uncover those details.

As per the Companies Act, 2013, Every Company should get its accounts audited by its Statutory Auditor irrespective of size and turnover and file the same with the Registrar of Companies.

According to the Companies Act, 2013, Every Company has to keep its books of accounts and other relevant books and papers and financial statements on an accrual basis and as per the double-entry system. As the stakeholders refer to these accounts and statements, the accounts must give a true and fair view of the Company's activities and financial position. The financials shall be maintained at the registered office of the Company for every financial year. However, the Board of directors are free to keep the books of accounts at any other place in India after filing a notice with the Registrar of Companies.

Types of Audit

There are three main types of audits:

1. Internal audits

Internal audits are performed by the employees of a company or organization. These audits are not distributed outside the Company. Instead, they are prepared for the use of management and other internal stakeholders.

Internal audits improve decision-making within a company by providing managers with actionable items to improve internal controls. They also ensure compliance with laws and regulations and maintain timely, fair, and accurate financial reporting.

Management teams can also utilize internal audits to identify flaws or inefficiencies within the Company before allowing external auditors to review the financial statements.

2. External audits

External organizations and third parties perform external audits. External audits provide an unbiased opinion that internal auditors might not be able to give. External financial audits are utilized to determine any material misstatements or errors in a company's financial statements.

When an auditor provides an unqualified opinion or clean opinion, it reflects that the Auditor provides confidence that the financial statements are represented with accuracy and completeness. External audits are essential for allowing various stakeholders to make decisions surrounding the Company being audited confidently.

The critical difference between an external auditor and an internal auditor is that an external auditor is independent. It means that they can provide a more unbiased opinion rather than an internal auditor, whose independence may be compromised due to the employer-employee relationship.

There are many well-established accounting firms that typically complete external audits for various corporations. The most well-known are the Big Four – Deloitte, KPMG, Ernst & Young (EY), and PricewaterhouseCoopers (PwC).

3. Government audits

Government audits are performed to ensure that financial statements have been prepared accurately not to misrepresent a company's taxable income.

Within the U.S., the Internal Revenue Services (IRS) performs audits that verify the accuracy of a taxpayer's tax returns and transactions. The IRS's Canadian counterpart is known as the Canada Revenue Agency (CRA).

Audit selections are made to ensure that companies are not misrepresenting their taxable income. Misstating taxable income, whether intentional or not, is considered tax fraud. The IRS and CRA now use statistical formulas and machine learning to find taxpayers at high risk of committing tax fraud.

Performing a government audit may result in a conclusion that there is:

• No change in the tax return

• A change that the taxpayer accepts

• A change that the taxpayer does not accept

If a taxpayer does not accept a change, the issue will go through a legal process of mediation or appeal.

Appointment of Auditor.

In the Company's Annual General Meeting, the Company appoints a Statutory Auditor to inspect the financials. The appointed Statutory Auditor will then carry out the Audit of the Company. The Auditor of a company should be a Chartered Accountant registered and hold a certificate of practice under the Chartered Accountants Act, 1949. An auditing firm can also be appointed to conduct the Audit if most partners practice in India and are eligible for appointment. Only a chartered accountant can sign the audit papers.

Particulars	Non-government company	Listed/Specified company	Government company
Application for 1st Auditor post Incorporation	Appointed by the Board Of Directors: This has to be done within 30 days from the date of Registration. Members can also make appointments at the Extraordinary General Meeting within 90 days of Information.	Appointed by the Board Of Directors: This has to be done within 30 days from the date of Registration. Members can also make appointments at the Extraordinary General Meeting within 90 days of Information.	Appointed by the Board Of Directors: This has to be done within 30 days from the date of Registration. Members can also make appointments at the Extraordinary General Meeting within 90 days of Information.
Auditor at First AGM with the written consent and a certificate of Auditor. ​	The members make the appointment. He will hold office till the end of the 6th Annual General Meeting (AGM). The appointment shall be following the conditions laid down by the Auditor.​	T