The document outlines the auditing process in India, distinguishing between statutory and internal audits, with statutory audits required for companies based on specific financial thresholds. It details the qualifications for auditors, the procedure for appointing them, and the responsibilities in preparing audit reports, emphasizing the importance of audits for businesses and investors. The document also discusses the advantages and limitations of auditing, highlighting factors that affect the audit's effectiveness.

1. Progress of Auditing in
India
Made By
Shubhank Shukla

2. Auditing
 An audit is a systematic and independent
examination of books, accounts, statutory
records, documents and vouchers of an
organization to ascertain how far the financial
statements as well as non-financial disclosures
present a true and fair view of the concern. It also
attempts to ensure that the books of accounts are
properly maintained by the concern as required
by law.

3. For any foreign executive operating in India it is
beneficial to have a basic understanding of audit
procedures in India.
Audits are generally classified into two types:
Statutory Audits; and,
Internal Audits.
Statutory audits are conducted in order to report the
state of a company’s finances and accounts to the
Indian government. Such audits are performed by
qualified auditors who are working as external and
independent parties. The audit report of a statutory
audit is made in the form prescribed by the government
agency.

4. Internal audits are conducted at the bequest of internal
management in order to check the health of a
company’s finances, and analyze operational
efficiency of the organization. Internal audits may be
performed by an independent party or by the
company’s own internal staff.
In India, every company whose shares are registered
on the stock exchange must have an internal auditing
system in place. For a company whose shares are not
listed on the stock exchange, but whose average
turnover during the previous three years exceeds INR5
crore, or whose share capital and reserves at the
beginning of the financial year exceeds INR50 lakh,
must have an internal auditing system in place. The
statutory auditor of the company must report on the
internal auditing system of the company in the audit

5. Statutory Audit In India
 In India, statutory audits are conducted for each
fiscal year (April 1 to March 31) and not the calendar
year. The two most common types of statutory
audits in India are:
 Tax Audits; and,
 Company Audits.
 Tax Audits
Tax audits are required under Section 44AB of
India’s Income Tax Act 1961. This section mandates
that every person whose business turnover exceeds
INR1 crore and every person working in a
profession with gross receipts exceeding INR25 lakh
must have their accounts audited by an independent

6.  It should be noted that the provision of tax audits
are applicable to everyone, be it an individual, a
partnership firm, a company or any other entity.
The tax audit report is to be obtained by
September 30 after the end of the previous fiscal
year. Non-compliance with the tax audit provisions
may attract a penalty of 0.5 percent of turnover or
INR1 lakh, whichever is lower.
 There are no specific rules regarding the
appointment or removal of a tax auditor

7. Company Audits
 The provisions for a company audit are contained in
the Companies Act, 1956. Every company,
irrespective of its nature of business or turnover, must
have its annual accounts audited each financial year.
For this purpose, the company and its directors have
to first appoint an auditor at the outset. Thereafter, at
each annual general meeting (AGM), an auditor is
appointed by the shareholders of the company who
will hold the position from one AGM to the conclusion
of the next AGM.
 The Companies Bill 2012 provides that an auditor
shall be appointed for a term of five consecutive
AGMs. Individuals and partnership firms, auditors
cannot be appointed for more than one or two terms,
respectively. After the completion of the term, the

8.  Only an independent chartered accountant or a
partnership firm of chartered accountants can be
appointed as the auditor of a company. The following
persons are specifically disqualified from becoming
an auditor per the Companies Act:
 A body corporate;
 An officer or employee of the company;
 A person who is partner with an employee of the
company or employee of an employee of the
company;
 Any person who is indebted to a company for a
sum exceeding INR1,000 or who have guaranteed
to the company on behalf of another person a sum
exceeding INR1,000; or,

9.  A person who has held any securities in the
company after one year from the date of
commencement of the Companies (Amendment)
Act, 2000.
 The auditor is required to prepare the audit report
in accordance with the Company Auditor’s Report
Order (CARO) 2003. CARO requires an auditor to
report on various aspects of the company, such as
fixed assets, inventories, internal audit standards,
internal controls, statutory dues, among others.
 The audit report must be obtained before holding
the AGM, which itself should be held within six
months from the end of the financial year.

10. Advantages of Auditing
 Businessman’s
Point of View
1. Detection of errors
and frauds
2. Loan from Banks
3. Proper valuation of
investments
4. Proper valuation of
assets
5. Govt. acceptance
6. Suggestions for
improvement
7. Better reputation
8. Uniformity in accounts
 Investor’s Point of
View
1. Protects Interest
2. Moral check
3. Builds reputation
4. Good security

11. Other Advantages
1. Audited accounts are detected as an authentic
record of transaction
2. Errors and frauds are detected and rectified
3. It increases the morale of the staff and thus it
prevents frauds and errors
4. Because of his expertise the auditor may advice
on various matters to his clients
5. An auditor acts as a trustee of his shareholders.
Hence he safeguards their financial interests
6. For taxation purpose auditing of accounts is a
must.

12. 7. In case of any claim is to be made from the insurance
company only audited account should be submitted.
8. Even in case of partnership firm auditing of accounts
helps in the settlement of claim at the time of
retirement/death of a partner.
9. Audited accounts help in managerial decisions.
10. They are useful to secure loans at the time of
amalgamation, absorption, reconstruction etc.
11. Auditing safeguards the interests of owners, creditors,
investors, and workers.
12. It is useful to take certain financial decisions like issuing
of shares, payment of dividend etc.

13. Limitations of Auditing
1. Want of Complete Picture:- The audit may not
give complete picture. If the accounts are
prepared with the intention to defraud others,
auditor may not be able to detect them.
2. Problems of Dependence:- Sometimes the
auditor has to depend on explanations,
clarification and information from staff and
client. He may or may not get correct or
complete information.
3. Post-mortem Examination:- Auditing is a post-
mortem examination. There is no use of such
examination when events have already been
occurred.

14. 4. Existence of Errors in the Audited Accounts:- It
is not possible for the auditor in all cases, to check
and every transaction of an organization. As a
result, there may be error in the audited accounts
even after the checking by the auditor.
5. Lack of Expertise:- Auditor has to seek opinion of
the experts on certain matter on which he may not
have experts knowledge. The auditor has to
depend upon such reports which may not always
be correct.
6. Diversified Situations:- Auditing is considered to
be a mechanical work. Auditors may not be in a
position to frame audit programme, which can be
followed in all the situations.
7. Quality of the Auditor:- Success of audit depends
on the sincerity with which the auditor has
performed his duties. The same audit work can be

15. 8. Existing of Defective Policies:- The auditor can
only report on the truth and fairness of the
financial statements. But other defects, i.e.
defects relating to management and control may
not be possible to be covered by the auditor.

16. Thank You!