The audit involves looking over the company’s financial records to determine whether its operations are legal and whether its accounting records are accurate. The distinction between a statutory audit and a tax audit is often unclear to people. The auditor carries out the tax audit by the Income-tax Act; this audit is related to the Company’s Act of 2013.
Introduction of Statuary Audit and Tax Audit
1. Statuary audit
A statutory audit is regarded by the Indian judiciary as being required for the corporate selector. Maintaining the company’s official accounting records is the goal of the audit. The nomination of auditors, dismissal of the auditor, the auditor’s rights and obligations, and compensation have all been governed by the Law of the Companies Act of 2013.
The audit is carried out by the auditor following legal guidelines, and it is relevant to the organization. During the annual meeting of the firm, the shareholders must approve the appointment of the auditor before it can be made. In that situation, they also have the power to decide on the auditor’s compensation. According to the Companies Act of 1956, registered colonies may employ a chartered accountant.
2. Tax audit
Finding an audit of the taxpayer’s accounts is the goal of a tax audit. Additionally, a chartered accountant performs the audit. Section 44AB of the Act, which is related to this audit, requires the auditor to provide his views and comments on the audit report. The Income Tax Act of 1961 defines a tax audit as an audit that must be conducted. However, there is a prerequisite to carrying out the audit. The prerequisite is that the assessee is as defined by the Income Tax Act. The assessee typically engages in a profession or business intending to turn a profit from his work. Additionally, he is required to keep a record of his business’s finances because income tax treats profits as taxable income.
The Primary Difference Between Tax Audit and Statutory Audit
The tasks performed by a tax audit and a statutory audit differ in several ways. For a better understanding of the goals and duties involved in carrying out these audits as well as the distinction between a tax audit and a statutory audit, we are presenting the following chart.
Differences in Detail Between the Two Audits
A statutory audit is performed as required by the laws law. On the other hand, if a company has a specific species turnover and gross receipt, a tax audit is also required audit.
The statutory audit can be carried out by any external auditor, however, a tax audit. Can be carried out for the company by a practicing chartered accountant.
The Companies Act of 2013’s Section 143 governs the statutory audit. The Income Tax Act of 1961’s Section 44AB, on the other hand, governs a tax audit.
Statutory audit is required of every company registered under the Companies Act of 2013. On the other hand, if their gross receipts or turnover exceed the threshold limit, any corporation, LLP, partnership firm, individual, or professional may elect to undergo a tax audit.
For completing a Statutory Audit, it is not necessary to reach the Turnover or Gross Receipt threshold limit. Every company, regardless of whether it generates any revenue, must perform a statutory audit. Contrarily, every organization whose annual revenue exceeds 1 crore and its gross receipts exceed 25 lakhs must conduct a tax audit.
Within six months of the end of the fiscal year, a company is required to conduct a statutory audit. However, before starting the audit, the firm is required to call a general meeting of the company’s officers and shareholders. On the other hand, a business or individual is required to conduct a tax audit and submit the tax audit report to the income tax department by September 30 of the relevant fiscal year.
The corporation faces a fine of between $25,000 and $5,000,000 if it violates the terms of a statutory audit. Officers who fail to comply with the audit can be fined between 10,000 and one million dollars. If a tax audit occurs, the fine might be up to 0.5 percent of total sales, gross receipts, or turnover. The fine, if paid in cash, will be at least 1,50,000.
As a result, it may be claimed that the objectives of statutory audits and tax audits are completely dissimilar. A statutory audit’s objectives are broader than those of a tax audit. Moreover, while a tax audit is relevant to businesses covered by the Income-tax Act, a statutory audit is required for all other businesses. Get in touch with Dailyfiling to receive the best legal support for your company, including a statutory audit and a tax audit.