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BY CA GIRISH KULKARNI

Imp and New Requirements with regards Tax and other Audit Report. BY CA GIRISH KULKARNI.

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BY CA GIRISH KULKARNI

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  1. Imp and New Requirements with regardsTax and other Audit Report BY CA GIRISH KULKARNI

  2. A person carrying on business clause(a) of Sec 44AB Gross Turnover Limit -New Limit Rs 60 Lacs ( Previous Limit Rs 40 Lacs). A person carrying on Profession clause(b) of Sec 44AB Gross Turnover Limit -New Limit Rs 15 Lacs ( Previous Limit Rs 10 Lacs). If profit declared lower then Amt/% prescribed Sec 44AD, Sec 44AE , Sec 44AF:-If such person claims that the profits and gains from the business are lower than the profits. In case of Loss also audit has to be carried 44AB-WHO IS REQUIRED TO GET AUDITED Presentation on Audit Compliances by CA GIRISH KULKARNI

  3. Sec 44AD(5) Drafting Mistake of law makers Eligible Business genuinely earns profit less then 8% , his turnover is Rs 60 Lacs. Then he incurred loss of house property of Rs 1.50 Lacs. His profit follow BELOW Rs 1.80 Lacs. Then his profit is not taxable. Definition means that he need to maintain books and no audit required. There can be downfall in 8% , due to Chapter VI deduction like 80C Carried forward and set off of losses One fails to understand intention of law maker. Its Drafting Mistake. Presentation on Audit Compliances by CA GIRISH KULKARNI

  4. IMPORTANT AMENDMENTS IN SEC 44AD IN FINANCE ACT 2009 & 2012 THE PROVISIONS ARE APPLICABLE TO SPECIFIED ASSESSEES AND IS FOR ELIGIBLE BUSINESS ONLY. SPECIFIED ASSESSEES MEANS, AN INDIVIDUAL, H.U.F.OR A PARTNERSHIP FIRM BUT NOT A LIMITED LIABILITY PARTNERSHIP FIRMS ASSESSEE MUST BE A RESIDENT. SCHEME IS NOT APPLICABLE TO ASSESSEE WHO HAS AVAILED DEDUCTIONS U/S 10A, 10AA,10B OR 10BA OR DEDUCTION UNDER ANY PROVISIONS OF HEADING C OF CHAPTER VIA ( SEC 80 H to 80 TT) PROVISIONS INCLUDES ALL BUSINESSES INSTEAD OF CIVIL. 44AF ALSO ABOLISHED. Section 44AD is applicable to Business and not Profession and Business is different from Profession. Advance Tax are not applicable to eligible assessees so far this business concerned . But CPC is unaware of this. CONTINUED Presentation on Audit Compliances by CA GIRISH KULKARNI

  5. IMPORTANT AMENDMENTS IN SEC 44AD IN FINANCE ACT 2009 & 2012 Some activities have been held to be business:- Advertising agent, Clearing, forwarding and shipping agents–CIT v/s. Jeevanlal Lallubhai & Co. [1994] 206 ITR 548 (Bom)., Couriers,  Insurance agent, Nursing home,Stock and share broking and dealing in shares and securities – CIT v/s. Lallubhai Nagardas & Sons [1993] 204 ITR 93 (Bom).,Travel agent. 44AD (6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply (WEF 1-4-2011,AY 2011-12)???????????? (i)  a person carrying on profession as referred to in sub-section (1) of section 44AA;  (ii)  a person earning income in the nature of commission or brokerage; or (iii)  a person carrying on any agency business Presentation on Audit Compliances by CA GIRISH KULKARNI

  6. Tax auditor BY AUDITOR i.e. Accounts of previous year be to audited by an accountant (Defined u/s 288) ,before the specified date i.e. 30 Sept. If Return/E-Return is not submitted and Audit is completed, Then Assessee is required to submit Audit Report physically as per Sec 44AB. Part Time Practicing CA can not sign tax audit.(Para 9.3 of ICAI Guidance Note). As per council decision(12-12-2008), any Internal Auditor can not be Tax Auditor. Signature on Auditors’ report: Tax Audit Report should be signed by the CA in Practice mentioning the name of firm, name of the member signing, Member ship No. and Registration Number of the firm (Applicable from 01.04.2010) as allotted to them by the Institute of CAs of India. The Income Tax Dept and ICAI is investigating cases 1. Audit exceeding 45 limits 2. Audit by Fake CAs 3. Audit signed in name of non practicing members 4. Audit signed in name of dead persons. New process of viewing number of Audit signed by CAs likely to start with support of NSDL likely to start after 30 Sept 2012. Presentation on Audit Compliances by CA GIRISH KULKARNI

  7. MAINTAINANCE OF BOOKS OF ACCOUNT IN CASE OF CASES COVERED U/S 44AD OR 44AE • When Books of Accounts need not be maintain, then whether But it is necessary to submit Balance Sheet or Capital Account • Opening Balance Sheet Become Crucial if not prepared • Method of Accounting:- Still Mandate as per Sec 145. Two Views • No Books, But Sec 145 applies • Sec 145 is out of Presumptive Taxation Presentation on Audit Compliances by CA GIRISH KULKARNI

  8. What are the receipts which forms Part of Turnover? • Sales Tax, excise duty, Cess, and other Levy. • Sales of unusable empties and Packages. • Service Charges charged for delivery As per Guidance note, the excise duty needs to be provided where goods are manufactured and kept in warehouse/factory Presentation on Audit Compliances by CA GIRISH KULKARNI

  9. Who bears the onus of proof to prove the turnover? The onus of proof is on the assessee. It is his duty to prove the turnover. If the assessee is maintaining the books of accounts, then it will be easy for him to prove the same, but if he is not maintaining the books of accounts, then it will be very difficult for him to prove, because there is no specific provision for the same. What documents you should provide to the AO to prove the turnover? •  copies of invoices issued during the PY •  copies of cash memo •  copies of Purchase bill •  Bank statement •  Inventory details, if any maintained •  Average G.P rate applicable to Particular business •  Returns filed under sales tax/vat/excise/service Tax laws. Presentation on Audit Compliances by CA GIRISH KULKARNI

  10. Sec 199 –Does the method of accounting impact the year of TDS credit ? The assessee is a firm and engaged in business of financing and follows cash system of accounting.  It gave a loan to a company on interest. The borrower while crediting the interest deducted TDS and issued TDS certificate. The assessee claimed the credit of TDS without offering the corresponding income to tax . The AO disallowed the claim of the assessee .The CIT (A) allowed the appeal of the assessee. ITO Business Ward –II (4) v. M/s Shri Anupallavi Finance & Investments (2011-TIOL-78-ITAT-MAD) Presentation on Audit Compliances by CA GIRISH KULKARNI

  11. MAINTAINANCE OF BOOKS OF ACCOUNT IN CASE OF CASES COVERED U/S 44AD OR 44AE • When Books of Accounts need not be maintain, then whether But it is necessary to submit Balance Sheet or Capital Account • Opening Balance Sheet Become Crucial if not prepared • Method of Accounting:- Still Mandate as per Sec 145. Two Views • No Books, But Sec 145 applies • Sec 145 is out of Presumptive Taxation Presentation on Audit Compliances by CA GIRISH KULKARNI

  12. APPLICABILITY OF TAX AUDIT If Income is exempt u/s 10 :- No Tax Audit required Favoured by ITAT Mumbai (in 2002): ACIT Vs India Magnum Fund 81 ITD 295 NOT FAVOURED BY ICAI GUIDANCE NOTE PARA 6.1 STATES 44AB OR OTHER SECTION OF INCOME TAX ACT DOES NOT EXEMPT FROM TAX AUDIT IF TOTAL INCOME IS NOT TAXABLE. BUT AGRICULRIST EXEMPTED FROM TAX AUDIT. VOLUNTARY CONTRIBUTION TO POLITICAL PARTIES ARE NOT PROFESSIONAL RECEIPTS AND NOT LIABLE FOR AUDIT. BOARD INSTRUCTION DT 19-10-2000 Continued Presentation on Audit Compliances by CA GIRISH KULKARNI

  13. APPLICABILITY OF TAX AUDIT Applicability of Tax Audit is only for Business Income and not other sources Ghai Construction 2009, 184 TAXMAN 52 , BOM IF assessee has more then one business, the turnover needs to be clubbed for calculating turnover u/s 44AB Bajrang Oil Mills Vs ITO 2007 , 163 TAXMAN 154 (RAJ) ACIT Vs K. SatishShetty (2009) 310 ITR 366 (KAR) • IF main object of Trust is promotion of Sports, then no tax audit required. Indian Hockey Federation Vs ITO 009 ITR 692 ITAT DELHI Presentation on Audit Compliances by CA GIRISH KULKARNI

  14. APPLICABILITY OF TAX AUDIT Futures and Options (F & O):Positive or Negative  difference on settlement of contract to be considered as turnover of business All Agents and Brokers and Sub Brokers (Para 5.6 of ICAI Guidance Note):- Turnover is aggregate amount of commission and not turnover effected by him. Share Brokers:- Transactions entered from his own account is to considered as Turnover u/s 44AD Presentation on Audit Compliances by CA GIRISH KULKARNI

  15. . • WHO IS PROFESSIONAL • The distinguishing feature of a profession is the possession by the practiceoner of the profession of specialized knowledge involving intellectual skill and higher education in learning. The services rendered by a professional while practicing the profession, are the service for which he has been trained. • The word profession implies professed attainments in special knowledge as distinguished from mere skill, special knowledge which is to be acquired only after patient study and application. • – United States V Laws. • Continued Presentation on Audit Compliances by CA GIRISH KULKARNI

  16. A company being an artificial person cannot be said to possess any personal skills. A company (being an artificial person) does not have a mind and body and, therefore, cannot be engaged in profession. It can neither have an intellectual skill or any manual still. ITO V. Ashalok Nursing Home (p) Ltd. (2006) 56TAX AT 86 held that requirement of rule 6F (3) does not apply to a person, which is an incorporated company. Politics is a profession CET v. P.V.G. Raju [1975] 101 ITR 465 (SC) Teaching of Vedanta is held to be vocation P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC) Presentation on Audit Compliances by CA GIRISH KULKARNI

  17. Claim Vs Obligation The word Claim signifies the right of assessee, and it is not an obligation of the assessee.  The following judicial decisions support this view : Samta construction Co  V. Pawan Kumar sharma (2000)244 ITR 845 (MP) CIT V. ARVIND MIILS LTD(1992) 193 ITR 255 AC, (SC) BANGLORE VELLIAPA TEXTILES LIMITED AND ANOTHER (2003) ITR 560 (SC) Presentation on Audit Compliances by CA GIRISH KULKARNI

  18. PARTNERHIP DEED :- Make Changes & Submittion CHECK PARTNERSHIP DEED CLAUSE ON REMUNERATION. NEEDS TO FILE CERTIFIED COPY WITH INCOME TAX OFFICE U/S 184(4) OF INCOME TAX ACT. ELSE LOSE CLAIM. Presentation on Audit Compliances by CA GIRISH KULKARNI

  19. FEW IMPORANT CASES –MAY HELP U FOR AUDIT CIT Vs Surinder Pal Anand(2010) 192 Taxman 264 ( P & H) Assessee was not under obligation to explain Individual Entry of cash deposit in the bank unless such entry has nexus with gross receipts. CIT Vs Amarshiv Construction P Ltd(2004) 88 ITD 381 (Ahd) Retention money detected from bills of the assessee contractor for satisfactory completion of work, has to be treated as income in the year in which bills are raised. ACIT Vs Balaji Constructions (2000) 110 TTJ 719 (Ahd.) Legislature has recognized 92% of contract as expenditure. The assessee can not be asked to explain the entries of expenditure. Shivani Builders V Income Tax officer(2007) 110 TTJ 719 (Ahd) During Survey , suppressed contract receipts found. It can not be ignored. Continue Presentation on Audit Compliances by CA GIRISH KULKARNI

  20. FEW IMPORANT CASES –MAY HELP U FOR AUDIT CIT V BhavanVa Path Nirmal(Bohra) & C. (2002)[110 TTJ 719 (Ahd.) : Profit assessed on estimated income.Sales tax refund in current year. Sales Tax refund can not be deemed to be income by invoking Sec 41(1). MohdAslam Vs ITO (ITA No 2028 of 1996 decided on 13-9-2004, Jodhpur ITAT) 44AE estimated assessee’s income from truck plying. Sale of scrap Continue Presentation on Audit Compliances by CA GIRISH KULKARNI

  21. FEW IMP CASES –MAY HELP U • Merilyne Shipping and Trasports at VishakhapatamHighcourt (2012): s.40(a)(ia) apply only to expenditure remaining payable. whether the provisions of sec.40(a)(ia) would apply to all payments made during the course of the year or it would apply only to the expenditure which remain payable as at the end of relevant year was considered by the Visakhapatnam Special Bench in the case of Merilyn Shipping & Transports, referred (Supra) and the Special bench, by majority view, has held that the provisions of section 40(a)(ia) of the Act would apply only to the expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year without deducting tax at source. Decision will depend on your case and judgement of assessing officer. Continue Presentation on Audit Compliances by CA GIRISH KULKARNI

  22. Few Imp Cases :4 Supreme Court Principles on 271 (1)( c) 1. Penalty does not depend on return income. JCIT, SuratvsSaheli Leasing & Industries Ltd [2010] 191 TAXMAN 165 (SC) held that even if return is NIl and after addition , there is no tax payable , the penalty u/s 271(1)( c) lies . does not depend on the issue whether the return pertains to income or loss . Even if there is loss return and no tax was levied after dis allowance, penalty u/s 271(1)( c) sustains. 2.Penalty cannot be imposed just for making incorrect claim :Supreme Court judgment in CIT vs Reliance PetroproductsPvt Ltd [2010] 322 ITR 158 is path breaking judgment specially the tendency of the income tax officers to initiate penalty proceeding for any claim by assessee which is not as per law. In this judgment, the Supreme Court also defined what is the meaning of “furnishing incorrect particulars of income” Continue Presentation on Audit Compliances by CA GIRISH KULKARNI

  23. Few Imp Cases :4 Supreme Court Principles on 271 (1)( c) 3.Mens Rea Not Necessary For Imposing Penalty u/s 271(1)( c) :-Apex Court in case of Union of India vsDharmendra Textile [2008] 166 TAXMAN 65 (SC ) held that the penalty u/s 271(1)( c) is a civil liability and it is not necessary for revenue authorities to prove that the assessee has deliberately did the error or intention of the assessee was to evade tax. This judgment also questioned earlier order of Supreme Court in Dilip N. Shroff v. Jt. CIT [2007] 161 Taxman 218 and held “. 4. A.O must prove that There was concealment of income or The return of income furnished by assessee or documents submitted by assessee during scrutiny proceeding is based on incorrect fact , falsity and untruth. Presentation on Audit Compliances by CA GIRISH KULKARNI

  24. Clause 16 on Employers contribution Section 36(1)(va) • The Employers normally make deductions from salaries of the employees towards their contribution for welfare funds like PF, ESI etc. These deducted amounts in the first instance treated as income of the employer assessee u/s 2(24)(x) and if it is paid before the due date to the credit of employees A/c of the welfare fund, it is allowed as deduction u/s 36(1)(va). Therefore if the payment has not been made before the due date, the deduction will not be allowed and it will result into an addition to the income of the assessee. • CIT vs. AIMIL Limited (Delhi High Court), • CIT vs. Dharmendra Sharma 297 ITR 320, • CIT vs. Sabari Enterprises 298 ITR 141(Karnataka) Presentation on Audit Compliances by CA GIRISH KULKARNI

  25. Clause 17(L) –Amount inadmissible under section 14A Expenditure incurred in relation to income which does not form part of the total income is not allowed as a deduction Primary responsibility of the assessee to furnish details Rule 8D [inserted vide Notification no. 208/2006 dated 24 March 2008] provides method for AO to determine the amount of expenditure in relation to income not included in total income Whether Rule 8D is mandatory for assessees? Presentation on Audit Compliances by CA GIRISH KULKARNI

  26. Sub Clause (L) on Sec 14A Disallowance of expenditure incurred in relation to Exempted income. It is in my opinion toughest responsibility has been cast on the Tax Auditor to determine the amount of inadmissible deduction of expenditure incurred in relation to an income which does not form part of total income. Recently the Hon’able Bombay High Court has delivered the Judgment in case of Godrej & Boyce vs DCIT ITA No; 626 of 2010 on 12.08.2010 whereby it has decided following issues:- (1) The argument that dividend on shares is not tax free in view of payment of dividend distribution tax is not acceptable as the said tax is being paid by the company and not the shareholder. Presentation on Audit Compliances by CA GIRISH KULKARNI

  27. Section 14A and rule 8D In view of the above facts if separate account books are maintained in respect sources generating exempted income, so as to show and account for amount of expenditure incurred for earning the exempted income, then to my opinion the severity of provisions of section 14A and rule 8D could be reduced. Presentation on Audit Compliances by CA GIRISH KULKARNI

  28. Clause 17(l) –Amount inadmissible under section 14A ICAI –280thCouncil meeting 7 –9 August 2008 –considered the appropriate guidance to members on clause 17(l): Rule 8D applicable when AO not satisfied with claim of assessee. This is during assessment, i. e., after tax audit is completed. Hence, tax auditor to verify inadmissible expenditure as determined by the assessee Rule 8D does not mandate that assessee should compute inadmissible amount under that rule Tax auditor to examine details and verify with reference to established principles of allocation of expenditure Presentation on Audit Compliances by CA GIRISH KULKARNI

  29. Entries for Clause 17A of Tax Audit Report The tax auditor is required to state the amount of interest inadmissible under section 23 of the MS&MED Act, 2006. Interest due and payable (Nil, if cash system On delayed payments of accounting is of accounting is Made to suppliers Followed) Interest due and payable (Nil, if cash system . On payments not of accounting is of accounting is Made to suppliers followed) Interest paid (Nil, if cash system On delayed payments of accounting is of accounting is followed) Presentation on Audit Compliances by CA GIRISH KULKARNI

  30. COST AUDIT FROM FY 2011-12, Many companies have come under the purview of Section 209(1)(d) of the companies Act and are required to file Compliance Report within one hundred and eighty days from the close of the company’s financial year. The date extended to 31-12-2012. The Tax Auditor needs to consider and needs to enclose copy of such report along with Tax Audit Report (clause 30). The said is requirement u/s 233B of Companies Act. Presentation on Audit Compliances by CA GIRISH KULKARNI

  31. Applicability of Cost Audit and Cost Compliance Report • There is difference in Cost Audit and Cost Compliance Certificate • For FY 2011-12 there are different criteria with conditions for applicability of Cost Audit and Cost Compliance Certificate which is explained further- Presentation on Audit Compliances by CA GIRISH KULKARNI

  32. Parameters to check the applicability of Cost audit and Compliance Certificate • Turnover of the company • Listing Status • Net Worth • Specific Industry Nature of the company Presentation on Audit Compliances by CA GIRISH KULKARNI

  33. Applicability of Cost Audit - Part A • The industries which have been brought under compulsory Cost Audit are – (a) Cost Accounting Records (Cement) Rules, 1997 (b) Cost Accounting Records (Tyres & Tubes) Rules, 1967 (c) Cost Accounting Records (Steel Plant) Rules, 1990 (d) Cost Accounting Records (Steel Tubes and Pipes) Rules, 1984 (e) Cost Accounting Records (Paper) Rules, 1975 (f) Cost Accounting Records (Insecticides) Rules, 1993 Refer CAB Order [F. No. 52/26/CAB-2010], dated 2-5-2011 `33 Presentation on Audit Compliances by CA GIRISH KULKARNI

  34. More industries which have been brought under compulsory Cost Audit from 1/4/2012 are – • Jute, Cotton,silk,woolen,or blended fibres /textiles • Edible Oil seeds and Oils (incl.Vanaspati) • Packaged Food Products • Organic and Inorganic Chemicals • Coal & lignite • Mining & metallurgy of ferrous and no ferrous metals • Tractors & other motor vehicles (incl. Automotive components) • Plantation Products • Engineering machinery (incl. electrical & electronic products) Refer CAB Order [F. No. 52/26/CAB-2010], dated 24-01-2012 34 Presentation on Audit Compliances by CA GIRISH KULKARNI

  35. Conditions for applicability of Cost Audit – Part A Companies a) Wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds hundred Crores of rupees; or b) Wherein the company's equity or debt securities are listed or are in the process of listing on any stock exchange, Refer CAB Order [F. No. 52/26/CAB-2010], dated 2-5-2011 Refer CAB Order [F. No. 52/26/CAB-2010], dated 24-01-2012 35 Presentation on Audit Compliances by CA GIRISH KULKARNI

  36. Applicability of Cost Audit – Part B • Cost Accounting Records (Bulk Drugs) Rules, 1974 • Cost Accounting Records (Formulations) Rules, 1988 • Cost Accounting Records (Fertilizers) Rules, 1993 • Cost Accounting Records (Sugar) Rules, 1997 • Cost Accounting Records (Industrial Alcohol) Rules, 1997 • Cost Accounting Records (Electricity Industry) Rules, 2001 • Cost Accounting Records (Petroleum Industry) Rules, 2002 • Cost Accounting Records (Telecommunications) Rules, 2002 Refer CAB Order [F. No. 52/26/CAB-2010], dated 2-5-2011 36 Presentation on Audit Compliances by CA GIRISH KULKARNI

  37. Conditions for applicability of Cost Audit – Part B Companies Conditions for applicability in brief - a) Aggregate Value of net worth as on the last day of immediately preceding financial year exceeds Rs. 5 Crores, or b) wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees; or c) wherein the company's equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India Refer CAB Order [F. No. 52/26/CAB-2010], dated 2-5-2011 37 Presentation on Audit Compliances by CA GIRISH KULKARNI

  38. Applicability of CARR 2011 • The applicability clause mentions that Cost Accounting Record Rules (CARR) 2011 shall apply to every company, including a foreign company as defined under section 591 of the Act, which is engaged in the - • Production, • Processing, • Manufacturing • Mining activities 38 Presentation on Audit Compliances by CA GIRISH KULKARNI

  39. Applicability of Cost Compliance Certificate • All the above mentioned companies have to mandatorily prepare Cost Records showing margin for each and every product manufactured/produced/ constructed or services provided, if they satisfies any of the following conditions- • Also the companies will be required to file Compliance Certificate with the MCA within 180 days of the close of financial year.( For FY 2011-12 extended up to 31-12-2012) Presentation on Audit Compliances by CA GIRISH KULKARNI

  40. Applicability of Cost Compliance Certificate Conditions – 1. Turnover of the company should exceed Rs. 20 Crores or 2. Net worth of the company should exceed Rs. 5 Crores or 3. The company is listed or are in the process of listing on any stock exchange, whether in India or outside India Presentation on Audit Compliances by CA GIRISH KULKARNI

  41. Basic requirements to be fulfilled while preparing Cost records Presentation on Audit Compliances by CA GIRISH KULKARNI Now as all the old notifications with regard to cost records have been abolished, the companies are required to maintain the cost records in any formats provided the records are capable of filling in the information in formats as are required under Cost Audit Report Rules.

  42. Procedure with regard to Appointment of Cost Auditor • E-Filing of application (Form 23C) on MCA website. Filing to be done within 90 days from the commencement of each financial year i.e. by 29th of June • The following two documents  needs to be filed along with form 23C • a. Certified copy of the Board Resolution proposing appointment of the cost auditor; and • b. Copy of the certificate obtained from the cost auditor regarding compliance of section 224 (1-B) of the Companies Act, 1956. • Now there is no need for the Central Government to accord approval for appointment of Cost Accountant, the appointment will be deemed to be approved unless any objection is received from Central Government within 30 days of filing the application • The company has to issue formal letter of appointment after expiry of thirty days. • The Cost Auditor has to file Form 23D with MCA within thirty days of receipt of formal letter of appointment Presentation on Audit Compliances by CA GIRISH KULKARNI

  43. Auditors Role Auditor having consolidated all the findings, auditors should invest adequate time in reviewing these findings and should assess the impact of significant audit findings on opinion. Having assessed the impact, if matter affects opinion, auditors should consider issuing report as per guidance i.e. qualified, disclaimer, and adverse. If it does not affect opinion, auditor should assess whether matter requires emphasis. Auditor needs to change his role totally after Implementation of changed IFRS likely to heat by 1-4-2013 and Implementation of SA 700 Presentation on Audit Compliances by CA GIRISH KULKARNI

  44. Objectives of the Auditor • Form an opinion on the Financial Statements(FS) based on an evaluation of the conclusions drawn from the audit evidence obtained • Express clearly the above opinion through a written report that also describes the basis for the opinion Presentation on Audit Compliances by CA GIRISH KULKARNI

  45. Key Role in respect of Audit Report General Purpose FS includes Balance Sheet, Statement of Profit and Loss, Cash Flow Statement (where applicable) and statements and explanatory notes which form part thereof, issued for the use of various stakeholders, Government and their agencies and the Public General purpose framework -A financial reporting framework designed to meet the common financial information needs of a wide range of users. The financial reporting framework may be a fair presentation framework or a compliance framework Unmodified opinion – The opinion expressed by the auditor when the auditor concludes that the FS are prepared, in all material respects, in accordance with the applicable financial reporting framework Presentation on Audit Compliances by CA GIRISH KULKARNI

  46. NOTES TO ACCOUNTS Issues: • Notes to Accounts – What to include? • Accounting Policies considering Standards • Disclosure under various Accounting Standards • Changes in Accounting Policies, financial impact • Unusual Items / transactions, Prior period items • Management Representation Letter • Standards on Auditing • Changes in Reporting Format due to recent and upcoming changes in taxation and other laws Presentation on Audit Compliances by CA GIRISH KULKARNI

  47. EVOLUTION OF AUDITING STANDARDS • 1983 -APC (AUDITING PRACTICE COMMITTEE) WAS CONSTITUTED • 1985-APC ISSUED FIRST STANDARD • 2002-APC NAME CHANGED TO AUDITING AND ASSURANCE STANDARD BOARD(AASB) • AASB ISSUED 43 STANDARDS (AAS) Presentation on Audit Compliances by CA GIRISH KULKARNI

  48. OBJECTIVES OF AASB :Review existing & Emerging auditing practices Background • worldwide and identify areas in which Standards on Quality Control, Engagement Standards and Statements on Auditing need to be developed. Review existing Standards and Statements on Auditing to • Assess their relevance in the changed conditions and to undertake their revision, if necessary. • Formulate Engagement Standards, Standards on Quality • Control and Statements on Auditing Presentation on Audit Compliances by CA GIRISH KULKARNI

  49. ICAI ON SAs • ICAI has issued “Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and Related Services”, which sets out the authority of the “Standards on Auditing (SAs)”. • All SAs interlinked - not to be implemented in isolation, but as a cohesive set of guidelines • Number given to SAs is similar to the numbering system followed for ISAs and at times the standards are also nearly similar. • Objective – help Auditor to reduce the risk of material misstatements to an acceptably low level Presentation on Audit Compliances by CA GIRISH KULKARNI

  50. RECLASSIFICATION OF AAS IN TO SA, SAE, SRE AND SRS • CORRESPONDING NEW NUMBERS FOR EACH AAS NUMBER. • THE PRINCIPLES AND PROCEDURES LAID DOWN IN THE RECLASSIFIED STANDARDS ARE IMPORTANT • RECLASSIFIED STANDARDS ON AUDITING SA , SAE , SRE , SRS Presentation on Audit Compliances by CA GIRISH KULKARNI

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