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Frequently Asked Questions
Even if internal audit is not mandatory. There are several advantages:
- 1. Improve system of internal controls, management procedures.
- 2. Enhanced stakeholder satisfaction and trust.
- 3. Increased transparency, effectiveness, and efficiency of business operations.
- 4. Increased reliability of financial and operational information.
- 5. Improvement and enhancement of business ethics, staff morale and overall organization.
Section 177 of the Companies Act, 2013 requires the following to constitute an audit committee and require the internal auditor to attend and participate in the meetings of such audit committees:
- 1. Every listed company
- 2. Unlisted public companies with paid up capital not less than INR 10 crores (US$ 166,666)
- 3. All private limited companies with paid up share capital not less than INR 20 crores (US$ 333,333) or more
- 4. All companies with paid up share capital of below the threshold limit mentioned in (2) and (3) above, but with public borrowings from financial institutions, banks or public deposits of rupees INR 50 crores(US$ 833,333) or more
As per Clause 49, an audit committee is required to review the following:
- 1. Whether in the entity, the internal audit function is being made functional in proper order by reviewing the structure of the internal audit department, personnel recruited and seniority of the official who shall be heading the department, frequency of audits and terms of remuneration of the chief internal auditor.
- 2. Internal audit reports relating to weaknesses found in internal controls.
- 3. The findings of any internal investigation by internal auditors into matters where there is a suspected fraud or irregularity, or a failure of internal control systems of a significant impact.
- 4. The CEO and the CFO are required to certify to the Board of Directors that they accept responsibility for the effectiveness of internal controls, and that they have disclosed to the auditors and the audit committee deficiencies in the operation of the internal controls, if any, and steps have been taken for their rectification.
Statutory audit is governed by companies Act. Statutory audit is the audit conducted to express the opinion on financial statement. Statutory Audit, is the audit of complete accounting records unlike Tax Audit, which is the audit of tax related transactions. Statutory audit is mandatory for all registered companies. It is compulsory irrespective of any turnover limit. Statutory Audit is compulsory audit with a few exceptions, whereas Tax audit is required only for those which fulfill the requirements specified under Income Tax Act.
Tax Audit also comes under statutory audit as per thr definitions. However statues governing tax audit and income tax audit are separate. Income tax audit is also simply called tax audit. Its objective is to make sure that person is complying with the Income Tax Act. As per the Income-tax Act 1961, Section 44AB, it is mandatory for the below persons (carrying on business or profession) to get his accounts audited before the September 30 by a Chartered Accountant.