Internal Audit, Statutory Audit and Tax Audit importance and advantages

Internal audit

Internal audit is the process that involves a risk assessment of an organization, the control of the evaluation system and governance processes in the business. Internal auditors work along with the management for reviewing the systems, observing the inadequacy within the organization. The found discrepancies are corrected before they turn as the substantial problems in the future.

An Internal auditor is an expert in internal auditing who has huge expertise in working on an organization’s operations. An organization’s objective is achieved with a help of internal auditor by bringing down a disciplined, efficient approach to appraise and develop the efficiency of risk management control. Such internal auditors are engaged by organizations to perform their internal auditing. The Internal auditing meticulously works on financial reporting, compliance with laws and regulation, investigating fraud and deterrence, assets safeguarding.

What are the advantages of Internal Audit?

• Impartially the internal audit function is carried out independently. This trait “independence” makes the internal auditors to provide an impartial judgment for the fair conduct of the business.
• Internal audits are designed to give the needs of management through constructive recommendations in the vicinities such as regulatory compliance and utilization of the resource.
• Risk management makes management to efficiently alleviate risk and other related qualms. These enhance the capacity of an organization to build moral value.
• Internal audit improves financial integrity and reliability, establishes monitoring procedure
• Improves efficiency in the company’s the operations
• A Proper accounting system is maintained

Statutory Audit

In India, the statutory audit is recommended by law. There are many audits in India such as the Income Tax Act, VAT Act to conduct various audits to comply with different decree requirement. Here, in India, statutory audit means audit under the Companies Act in which the reports are reported to the company shareholders by the auditor. The purpose of the statutory audit is to ensure the fairness and credibility of accounting records. The auditor’s appointment, his remuneration, duties are assigned by the provisions of the law, as pertinent to the organization.

An External auditor carries out the statutory audit. In his reports, the statutory auditor expresses his outlook on the fair values of the company’s final accounts. He also confirms the observance of the financial statements according to the provision of the act.

Shareholders are appointing Statutory auditors in a General Meeting for a maximum term of six years. After the time, they may be re-elected by the shareholders.

The following benefits are offered by a statutory audit:

• It assures the management that their duties in statutory performed perfectly.
• Statutory audit improves the reliability of the published financial statement
• It provides internal control’s efficiency.
• The statutory audit ensures the management that they have to abide by non-statutory requirement say Corporate Governance requirement.
• When the internal controls are poor in a company, the statutory auditor will give the suggestion for the company’s improvement which will help the company from risk and improves the company’s performance.

Tax Audit

The Tax audit is an individual’s tax return to confirm the reported financial information. It is quite mandatory for the following persons to his business or profession accounts to be audited before every September 30 by a Chartered Accountant according to the Income Tax Act 196.

• When the gross receipts in a profession go above Rs.25 lakhs in any of the previous years.
• When the gross receipts, total sales, turnover in a business surpasses Rs.100 lakhs in any of the previous years.
• A Tax Audit is done by a Chartered Accountant primarily for Assessee

The Tax audit is categorized into Office audit, Random audit, Field audit, Correspondence Audit.

A Tax audit is useful and conducted to analyze the tax payers’ habits; it determines how their returns are filed, and how certain entries the company makes for its statistical purposes. This work is processed by the IRS National Research Program. With the help of this program, returns are selected randomly. However, these returns are checked accurately for the compliance with the law.

Advantages of Tax Audit

• When you are demanding for a tax audit result, you will not cost anything. If you seek out assistance from a tax attorney, which is typically not recommended for normal and simple cases.
• It might hold up the audit tax bill for some months and it gives the person time to be able to raise cash so as to pay for his tax obligation.
• Tax audit leads to tax savings frequently even though it occasionally results in success concerning the case.