CHAPTER - I

1.1 INTRODUCTION

A firm runs by one or more partners authorized by institute of chartered Accountant firms
provide tax, audit and advice on other legal matters to the financial aspect of the organization
under the rule and regulation of the CA by laws of the International Accounting Standards. CA
students and provided highly dedicated professionals though a process of conducting and passing
specific examinations successful students were then admitted the members of the institute and
after the fulfillment of certain conditions, eligible members were entitled to practice and were
allowed to train CA students. With the passage of the time the institute of Chartered Accountant
of Pakistan in playing its role as one of the most organized professional body of the country.
1.2 OBJECTIVES OF THE STUDY

 Examining the system of internal check.

 Checking arithmetical accuracy of books of accounts, verifying posting, casting,
balancing etc.
 Verifying the authenticity and validity of transactions.
 Checking the proper distinction between capital and revenue nature of transactions.
 Confirming the existence and value of assets and liabilities.
 To provide information to income tax authority.

1.3 LIMITATIONS

 Auditing fails to verify planned frauds. The management can settle thickly to operate the
accounts in order to cover up their inefficiencies.
 Auditing is based on many certificates taken from management and other persons.
 The audit work is completed with cost. ‘The cost of an audit should not exceed.
 Auditing is nothing more than checking on past activities.

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 CHAPTER - II

2.1 PROFILE OF THE SRI SAI AUDITOR

Name Accountant :

Year of establish :

Owner :

Address :

Mobile :

Email :

Area of Services :

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2.2 COMPANY PROFILE

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2.3 HIERARCHY CHART

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 CHAPTER-IV
DEFFERENT TYPES OF DEPARTMENTS
4.1 AUDITING
Preparation of accounts is not the duty of an Auditor. “Auditing begins, where
accountancy ends”. Auditor is only concerned for checking and verification of records. Auditor
is a qualified person appointed for the purpose of certification of work done by others.
An Auditor must have the following qualifications and qualities

 He should be a qualified Chartered Accountant or he should be a qualified member of

The Institute of Cost & Works Accountants of India to do cost audit.
 He must have adequate skills and qualities to conduct his work efficiently.
 An Auditor must be honest, impartial and unbiased. He should also be hard-working,
have adequate common sense, capacity to hear arguments of others, systematic and
methodical.
 An Auditor should ask for clarification on matter on which he is unable to understand the
information provided to him.
 His audit report should be correct and clear.
 In case where any suspicious situation arises, he should assume that he is dealing with
dishonest and fraudulent peoples.
 He must have thorough knowledge of accounting principles and practices.
 He must have the knowhow of all the domestic and international court case decisions.
 He must have thorough knowledge of financial management, industrial management and
business organizations.
 He must have up-to-date knowledge of the Mercantile law and the Companies Act.

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4.2 ACCOUNTANCY
Accountancy begins where book-keeping ends." It means that an accountant comes into
the picture only when the book keeper has done his job. The functions of accountant can be
classified as:

(i) Checking the work of book-keeper.

(ii) Preparation of trial balance,

(iii) Preparation of Trading and Profit and loss Account.

(iv) Preparation of balance sheet,

(v) Passing entries for rectification of errors and making adjustments.

An accountant is supposed to be an expert in the accounting procedures as he has to

examine analytically the final accounts. But it is not necessary for him to pass the chartered
Accountant's examination. He it's not supposed to submit his report after the completion of work.
The accounts of a business and its financial position can be examined by an independent and
qualified auditor. Quick discovery of errors and frauds—Errors and frauds are located very easily
and at early stage. Therefore, chances of their repetition are reduced to the minimum. Moral
check on the Employees—Through auditing, the staff maintaining accounts become
more alert and careful in keeping future accounts up-to-date. Loans and credit can easily be
obtained from banks and other money lenders on the basis of properly audited accounts. The
business itself enjoys better reputation due to audited accounts.

In case of Advice to the management—regular audit, the auditor can come into close touch with
the working of the business & thus, can give suggestions the management to
improve it in case he is asked to do so. Audit is useful in case of a business managed by some
agent or representative of its owner.
ACCOUNTS AND AUDIT
Proper and accurate compilation of financial information of a corporate and its
disclosure, in a manner that is standardized and understood by stakeholders, is central to the
credibility of the corporates and soundness of investment decisions by the investors. The
preparation of financial information and its audit, therefore, needs to be regulated through law

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with stringent penalties for non-observance. It would however, not be feasible for the law to
prescribe all the details guiding the treatment of this subject.
This is a technical matter which needs to be gone into by experts keeping in view the
requirements of proper disclosures of financial information. Chartered Accountants of India
(ICAI) has done useful work in prescribing operational standards of accounting to fill the gap till
Accounting Standards could be notified. We expect that the process of notification of
Accounting Standards, incorporating international best practices, would be completed shortly.
The Committee took the view that consolidation of financial statements of subsidiaries
with those of holding companies should be mandatory. The Committee discussed the question of
the manner of maintenance of accounts of entities other than companies but controlled by
companies registered under the Act. With the proposed consolidation of accounts by holding
companies.
The Committee was of the view that rendering of all services by the Auditors which were
not related to audit, accounting records or financial statements, should not be prohibited from
being rendered by the Auditors subject to a prescribed threshold of materiality. All non audit
services may however be pre-approved by Audit Committee where such a committee is
mandated or in existence.

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4.3 TDS
TDS stands for 'Tax Deducted at Source'. It was introduced to collect tax at the source
from where an individual's income is generated. The government uses TDS as a tool to collect
tax in order to minimize tax evasion by taxing the income (partially or wholly) at the time it is
generated rather than at a later date.
TDS is applicable on the various incomes such as salaries, interest received, commission
received etc. TDS is not applicable to all incomes and persons for all transactions. Different rates
of TDS have been prescribed by the Income Tax Act for different payments and different
categories of recipients. For example, payment of redemption proceeds by a debt mutual fund to
a resident individual is not subject to TDS but for a Non-resident Indian is subject to TDS.
TDS works on the concept that every person making specified type of payments to any
person shall deduct tax at the rates prescribed in the Income Tax Act at source and deposit the
same into the government's account. The person who is making the payment is responsible for
deducting the tax and depositing the same with government.

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4.4 GST FILING

Goods and Service Tax (GST) is structured for efficient tax collection, reduction in
corruption, easy inter-state movement of goods and a lot more. The GST Law provides for self-
assessment to facilitate easy compliance and payment of taxes. It also explains the notices, the
demand and recovery provisions when the taxes are unpaid, short paid and/or returns are not
filed.

General Audit: The commissioner or on his orders an officer may conduct an audit of any
registered dealer.
Special Audit: The department may conduct a special audit due to the complexity of the case
and considering the interest of revenue. The CA or a CMA will be appointed to conduct the
audit.

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 Audit under GST involves examination of records, returns and other documents
maintained by a GST registered person. It also ensures correctness of turnover declared, taxes
paid, refund claimed, input tax credit availed and assess other such compliances under GST Act
to be checked by an authorized expert.
GST is a trust-based taxation regime wherein a taxpayer is required to self-assess his tax
liability, pay taxes and file returns. Thus, to ensure whether the taxpayer has correctly self -
assessed his tax liability a robust audit mechanism is a must. Various measures are taken by the
government for proper implementation of GST and audit is one amongst them.
4.5 E-FILLING

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 The filing of audit reports was made mandatory in ITR Form 5, 6 and 7 after the tax
department noticed discrepancies in filing of some returns along with audit reports. The Institute
of Chartered Accounts of India brought to the notice of the I-T department that some companies
were furnishing fake name and registration numbers of auditors in their returns.

4.6 TALLY
Tally Audit which enables the auditor to perform an audit or track changes that affect the
integrity of a transaction, such as changes made to Date, Ledger Masters and Amounts in the
Voucher are reflected in the Tally Audit Listings. A growing economy, widening tax net and
increasing compliance requirements make an Auditor’s role critical. For a Chartered Accountant
like yourself, this could mean time is at a premium. Travel and people costs escalate by the day.
Manpower is in short supply. Instead of an ideal level workload across the year, you have short
periods of intense work.

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 CHAPTER - IV

INTRODUCTION OF AUDITING

4.1 Origin of Auditing

The origin of auditing may be traced back to the 18th century when the practice of large-
scale production was developed as a result of Industrial Revolution. It is found that some systems
of checks and counter checks were applied for maintaining accounts of public institutions, as
early as the days of the ancient Egyptians, the Greek and the Romans.
The growth of accounting profession in India is of a quite recent origin. It was an
outcome of the Indian companies Act, 1913 which prescribed for the first time the qualifications
of an auditor. Due to rapid growth in the size of business firms, it has become necessary that the
accounts must be checked and audited by an independent person, known as auditor especially in
case of joint-stock companies where the shareholders are drawn from far off places. That is why
it becomes necessary to assure them that their investment is safe and that the directors and the
managing directors etc. handling capital and accounts, have presented true and correct accounts.
4.2 Difference between Accountancy and Auditing
The difference between Accountancy and Auditing is as follows :

1. Accountancy is mainly concerned with the preparation of summary and analysis of the records
prepared by the book-keeper for this, an accountant has to prepare trial balance and then annual
accounts. On the other hand, Auditing means the verification of book entries and accounts to find
out their accuracy. So the auditor's work is to find out whether the final accounts exhibit a true
and fair view of the state of affairs of the concern or not and to report his findings to the share
holders.

2. An accountant is an employee of the business while an auditor is an independent outsider.

3. As an employee of business, an accountant draws his monthly salary regularly from the
business itself while an auditor is paid a remuneration agreed upon between him and his client.

4. An accountant is not expected to have a knowledge of auditing but for an auditor, it is very
essential to possess a thorough knowledge of accountancy.

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5. An auditor can be changed from year to year but an accountant is not, as he is usually a
permanent employee of the business.

4.3 Tax for audit

A tax audit can be conducted by a Chartered Accountant or a firm of Chartered
Accountants. If it is performed by the latter, the name of the signatory who has signed the report
on behalf of the firm must be stated in the audit report. The signatory must provide his/her
membership number while registering in the e-filing portal. Tax audits can also be performed by
the Statutory Auditor. It is important to note that, Chartered Accountants have a limit on the
number of tax audit reports that can be filed. The maximum number of tax audits that can be
undertaken by a Chartered Accountant is limited to 60. In case of a firm the restriction on tax
audit limit will be applicable for each of the partners.
Objectives of tax audit

Tax audit is conducted to achieve the following objectives:

 Ensure proper maintenance and correctness of books of accounts and certification of the
same by tax auditor.

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 Reporting of observations/discrepancies noted by tax auditor after a methodical
examination of books of account.
 Reporting prescribed information such as tax depreciation, compliance of various
provisions of income tax law etc. This in turn enables and also saves time of tax
authorities in verifying the correctness of income tax return filed by the taxpayer such as
total income, claim for deductions etc.
 A proper system of tax audit would ensure that all the businesses maintain the books of
accounts and all other revenue/expense records properly.
 A proper tax audit would also ensure that the total income and the claims for deduction
are correctly and accurately entered by the businessmen.
 Tax audit restricts the chance of fraudulent practices.
 Tax audit facilitates the administration of tax laws by proper presentation of accounts
before tax authorities and save the time of assessing officers engaged in carrying out
routine verifications.
Audits
No matter what type of audit the IRS decides to conduct, you will receive notification of
it by mail. A mail audit is the simplest type of IRS examination and does not require you to
meet with an auditor in person. Typically, the IRS requests additional documentation to
substantiate various items you report on your tax return. For example, if you claim $10,000
in charitable deductions, the IRS may send you a letter requesting proof of your donations.
Generally, submitting sufficient proof will conclude the audit in your favor if the IRS is
satisfied.
Office audits
An office audit is an in-person audit conducted at a local IRS office. These audits are
typically more in-depth than mail audits and usually include questioning by an audit officer
about information on your return. It will be asked to bring specific information to an office
audit, such as the books and records for your business or your personal bank statements and
receipts. You also have the right to bring an accountant or lawyer to represent you at these
meetings.

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 Field audits
The field audit is the broadest type of examination that the IRS conducts. In these cases,
an IRS agent will conduct the audit at your home or place of business. Generally, field audits
are conducted when the IRS is questioning more than just a deduction or two. A field audit is
generally very thorough and will cover many, if not all, items on your return.
Possible outcomes of an audit
There are three possible outcomes of an IRS audit. If the IRS is satisfied with your
explanations and the documentation you provide, then it will not change anything on your tax
return. If the IRS proposes changes to your tax return, you can either agree and accept the
changes or challenge the agent's assessment. If you agree, you will sign an examination
report or other form provided by the IRS and establish some type of payment arrangement. If
you disagree with the findings, you can set up a conference with an IRS manager to further
review your case or you can request a formal appeals conference.

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 CHAPTER - V

CONCLUSION

Audit team members need to clearly communicate the type of conclusion in the audit
report. They also need to use professional judgment in forming. For example, the team may
decide to qualify the conclusion when some parts of an entity’s performance are satisfactory
while others are unsatisfactory. The conclusion can then contain an "except for" statement to
disclose the deviations from satisfactory performance. We conducted our audit in accordance
with International Standards on Auditing (or to relevant national standards). Those Standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.

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