Steps before Commencement of new Audit

1. Appointment Confirmation

The auditor must examine the terms and conditions of his appointment. It should
be confirmed that the appointment was authorized by a competent authority and
there is no reason whatsoever in rejecting this offer.

2. Legal Documents

Study of memorandum of association and articles of association to be carried out

in order to ascertain the powers of the company and that of its management.

3. Prospectus Issued During the Year

The auditor must confirm that its contents are duly approved and authorized by
the memorandum of association of the company.
4. Inventory Observation
Various contracts made with other companies, in particular foreign companies,
must be checked for their proper authorization by the memorandum of
association and articles of association. It is also pertinent to mention that the
auditor must point out to the clients that stock taking must be conducted under
his watchful eyes, especially in the case when goods are stored at distant
branches of the company.
5. Nature off Business
Nature of business plays an important role in planning of auditing procedures and
their application. Knowledge of the nature of a business concern under audit can
be acquired from the memorandum of association, partnership deeds etc.
6. System of Accounting
The auditor must obtain the list of the books of accounts and records maintained
by the business concern. He must also enquire about the system of internal
control in the business concern. In addition to this, he must also ascertain
whether it is a single entry or double entry system, and that what is the method
adopted in preparing find accounts by the business concern.
7. Reliability of Internal Control
The auditor must also enquire about the level of the system of internal control
established in the business concern. The auditor must very carefully examine its
validity so that it cannot only be trusted but can also be a measure of reliability of
the work conducted.
8. Audit Program
An audit program is prepared in the light of the above information and certain
duties in this regard assigned and finally the audit of a company begins.
9. Instructions to the Client
The auditor should ask his client to direct the staff of the company to prepare a
schedule of debtors and creditors, list of investments, prepared and outstanding
expenses etc.
10. Client Certificates
The auditor can obtain certificates from the client about not only the confirmation
but also the authenticity of accounts, debtors, creditors etc. In addition to this, the
client can also issue certificates for the benefit of the auditor in context of stock
valuation.
11. List of Employees/Officers
The auditor must acquire information about the employees and officers working
in different departments of the company. The auditor must have adequate
knowledge about their authority and responsibility in order to be able to prepare a
quality report of the company at the end of the financial year.
12. Change of Auditors
The auditor must ascertain the reasons, as to why the auditor was changed. He
must compare the reasons of the retiring auditor with that given by the client.
13. Analytical Review
The auditor can check the ratios and percentage for a number of years. He can
examine the trend of various items in order to have knowledge of any unusual
items.
14. Time Required

The auditor can decide the time required to complete the audit work. He can
increase or decrease the members of staff to do his work. The cost of audit can
increase due to any extension made in the time period of audit work.

2) Liabilities of Company Auditor An auditor is a person who is appointed to examine and report on the
financial statements of a company. The main objective of an auditor is to provide an independent opinion on
the financial statements of the company. However, an auditor can face various liabilities if they do not perform
their duties properly. Here are some of the liabilities of a company auditor:

Civil Liability :The auditor can be held liable for civil damages if they fail to detect material misstatements in
the company's financial statements. The auditor's negligence or breach of duty can cause financial losses to the
company, shareholders, or other stakeholders. The auditor can be sued for damages by the affected parties.

Criminal Liability The auditor can be held criminally liable if they are found guilty of fraudulent activities,
such as falsification of financial records or embezzlement of funds. The auditor can be punished with
imprisonment, fines, or both.

Professional Liability The auditor can face professional liability if they violate the rules and regulations of the
auditing profession. The auditor can be sanctioned by the regulatory authorities, such as the Institute of
Chartered Accountants of India (ICAI), for professional misconduct or negligence.
Liability to Third Parties The auditor can be held liable to third parties who rely on the financial statements
of the company. For example, if a bank lends money to the company based on the audited financial statements
and suffers losses due to the company's insolvency, the bank can sue the auditor for negligence.

Liability to Shareholders The auditor can be held liable to the shareholders of the company if they fail to
detect material misstatements in the financial statements. The shareholders can sue the auditor for damages if
they suffer losses due to the auditor's negligence.

Conclusion In conclusion, the liabilities of a company auditor are significant, and they need to be careful
while performing their duties. The auditor needs to follow the auditing standards and guidelines to avoid
liabilities. The auditor should also maintain independence, objectivity, and professionalism while conducting
the audit.

3) "Previous year" and "assessment year" are terms commonly used in the context of income tax
calculations and reporting. They are specific time periods with distinct meanings and purposes. In
this article, we will explore the differences between the previous year and the assessment year, their
definitions, and their significance in income tax calculations.

Sr. Previous Year Assessment Year

No
1 The previous year refers to the financial The assessment year refers to the year in which
year immediately preceding the assessment the income earned during the previous year is
year. It is the year in which the income is assessed and taxed by the tax authorities. It is the
earned and expenses are incurred. year in which the individual or entity files their
income tax return and settles their tax liability.
2 The previous year starts on April 1st and The assessment year starts immediately after the
ends on March 31st of the following previous year ends and runs from April 1st to
calendar year. It is the year in which March 31st of the subsequent calendar year. It is
financial transactions take place, and the year in which the income earned during the
income is generated. previous year is evaluated, assessed, and taxed.
3 The previous year is relevant for The assessment year is when the tax authorities
determining the taxable income and review and assess the income earned during the
calculating the tax liability. Income and previous year. It is the year when the taxpayer
expenses incurred during the previous year files their income tax return, provides supporting
are taken into account for tax purposes. documentation, and settles their tax liability.
4 The previous year is crucial for maintaining The assessment year is significant for tax
financial records, preparing financial compliance, as taxpayers are required to file their
statements, and analyzing the financial income tax returns and fulfill their tax obligations
performance of individuals and businesses. for the income earned during the previous year.
5 Examples of the previous year include: Examples of the assessment year include: From
From April 1, 2021, to March 31, 2022. It is April 1, 2022, to March 31, 2023. It is the year in
the year in which financial transactions, which the income earned during the previous year
income, and expenses occur. is assessed, and tax returns are filed.
6 The previous year is relevant for The assessment year is significant for individuals,
individuals, businesses, and entities to businesses, and entities to fulfill their tax
maintain their financial records, track obligations, accurately report their income, and
 income and expenses, and ensure settle their tax liability based on the assessment of
compliance with accounting and reporting the previous year's income.
standards.
7 The previous year is the basis for The assessment year is when the taxpayer submits
calculating the income tax liability, their income tax return, provides details of
including deductions, exemptions, and tax income earned during the previous year, claims
rates applicable to the income earned during eligible deductions, and computes the final tax
that year. liability based on the assessment.
8 The previous year is when financial The assessment year is when the income earned
transactions occur, and income is earned or during the previous year is evaluated, assessed,
received, irrespective of when the tax and taxed, leading to the settlement of the tax
liability is assessed or settled. liability for that income.
9 The previous year is the primary reference The assessment year is the primary reference
period for determining the financial period for tax authorities to assess and evaluate
performance, profitability, and cash flow of the income earned during the previous year,
individuals and businesses. determine the tax liability, and enforce tax
compliance.
10 The previous year is relevant for financial The assessment year is relevant for tax planning,
planning, budgeting, and analyzing the ensuring compliance with tax laws, and fulfilling
financial health and performance of the tax obligations associated with the income
individuals, businesses, and entities. earned during the previous year.
11 The previous year is used for preparing The assessment year is used for filing income tax
financial statements, such as income returns, providing financial information, and
statements, balance sheets, and cash flow determining the tax liability associated with the
statements, reflecting the financial income earned during the previous year.
transactions and performance during that
period.
12 The previous year is when individuals and The assessment year is when tax authorities
businesses engage in financial activities, assess the income earned during the previous
such as generating revenue, incurring year, review tax returns, and ensure compliance
expenses, making investments, and with tax laws and regulations.
conducting business operations.
13 The previous year is crucial for financial The assessment year is crucial for tax
management, decision-making, and management, compliance, and settling the tax
analyzing the financial position and liability associated with the income earned during
performance of individuals, businesses, and the previous year.
entities.
14 The previous year serves as a reference The assessment year serves as a reference period
period for tracking income, expenses, for tax authorities to assess the income earned
profits, losses, and other financial metrics during the previous year, compute the tax
relevant to individuals, businesses, and liability, and enforce tax compliance based on the
entities. income assessment.
15 The previous year is a fixed period The assessment year is also a fixed period
determined by the fiscal or financial year, determined by the fiscal or financial year,
which may vary across countries or following the previous year, and is aligned with
 jurisdictions. the tax laws and regulations of the respective
country or jurisdiction.
16 The previous year is when financial The assessment year is when tax authorities
transactions, income, and expenses are review the income earned during the previous
recorded and documented in financial year, evaluate the accuracy of income tax returns,
statements and accounting records. and ensure compliance with tax regulations.
17 The previous year is crucial for individuals The assessment year is crucial for individuals and
and businesses to evaluate their financial businesses to accurately report their income,
performance, make informed decisions, and claim deductions, compute the tax liability, and
plan for the future based on the income and fulfill their tax obligations based on the
expenses incurred during that period. assessment of the income earned during the
previous year.
18 The previous year is relevant for financial The assessment year is relevant for tax analysis,
analysis, benchmarking, and comparison of assessing the accuracy of income tax returns,
financial data, performance, and trends over identifying discrepancies, and ensuring
time. compliance with tax laws and regulations based
on the assessment of the income earned during the
previous year.
19 The previous year is when individuals and The assessment year is when tax authorities
businesses engage in financial activities that assess the income earned during the previous
impact their financial statements, year, determine the tax liability, and enforce tax
profitability, and financial position. compliance based on the assessment.
20 The previous year is often used for financial The assessment year is often used for tax
reporting, auditing, and analyzing the auditing, reviewing income tax returns, assessing
financial performance and viability of the accuracy of financial information, and
individuals, businesses, and entities. ensuring compliance with tax regulations based
on the assessment of the income earned during the
prev

An audit report is a document prepared by an auditor that serves as a summary of

a company's financial status. This document lists a company's assets and liabilities,
as well as the auditor's educated opinion on the business's finances. Auditors then
release this document to the public for consumers and investors to see. While
audits may be mandatory, companies also request them. Companies seeking to
find fiscal areas that could improve or those hoping to find investors may be
interested in having an audit performed for their business.To ensure that all
companies are held to the same standards, auditors compare a company's fiscal
practices to the Generally Accepted Accounting Principles (GAAP). The GAAP is a
set of principles and procedures established by the Financial Accounting Standings
Board. The goal of these practices is to set a standard for clarity and consistency
when recording financial transactions and other information. The GAAP allows
auditors to objectively compare the fiscal standing of different companies.Read
more: Audit: Definition, Types and Benefits

The four types of audit reports

A company can receive four different types of audit reports. Auditors use the same
methods to determine the audit type based on the outcome of their review. These
reports communicate to businesses and investors the validity and status of a
company's financial standing. While all are similar in structure, each of these four
reports shows different results of an audit, depending on whether the company
uses approved financial practices or not.Here are the four audit report types:

1. Clean report

A clean report expresses an auditor's "unqualified opinion," which means the

auditor did not find any issues with a company's financial records. "Unqualified"
expresses that the company does not need to meet any additional qualifications to
improve its financial status. A company receives a clean report when it shows it
follows the standards set by the GAAP.This is the most desired and common type
of audit report. In the report document, an auditor expresses their belief that the
company has a good financial standing and complies with the laws and governing
principles of accounting. Most investors want a company to earn a clean audit
report before they invest in the business.

2. Qualified report

A qualified report expresses an auditor's qualified opinion of a company's financial

standing. This shows that a company has not followed all the standards set by the
GAAP but isn't conducting its fiscal business in an illegal or misrepresenting way. A
qualified report means that a company must meet certain qualifications to have a
financial status approved by auditors.Auditors may issue this report if there are
certain business transactions or practices of which they are unsure. In the written
qualified report, an auditor details what qualifications a company must address to
comply with the GAAP. Qualified reports help financial management teams
recognize what parts of their company need fixing to improve its financial status.

3. Disclaimer report

Auditors issue disclaimer reports when they have excused themselves from
providing an opinion about a company's financials. When an auditor issues this
report, it often means they felt the company prevented them from making proper
observations. This may happen if a company does not give satisfactory answers to
an auditor's questions or if there is a mistake in their financial records. If this
happens, an auditor may feel they cannot make a definite decision about a
company's financials.A disclaimer report allows them to distance themselves from
a company if necessary and maintain their reputation as a fair and professional
auditor.

4. Adverse opinion report

An adverse opinion report often highlights fraud within a company. Auditors issue
adverse opinion reports when they discover instances of irregularities or
misrepresentations in a company's financial statements. These companies often
have disregarded the standards set by the GAAP.An adverse opinion report alerts
finance professionals and members of the public of a company's possibly
dishonest practices. These reports also allow the company to address and improve
its practices.

The term "Exempt Income" refers to Any income that a person gets or earns throughout the
course of a financial year and is judged to be non-taxable.

 Exempt income can take on a variety of shapes, including interest from agricultural
sources, PPF interest, long-term capital gains from shares and stocks, and much more.

According to the Income Tax Act, certain sources of income are exempt from taxation as long as
they adhere to the rules and regulations established in the Act.

Exempted income differs from income tax deduction in that tax deduction refers to an amount
deducted from the total income whereas exempted income refers to income that is not at all
taxed. The comprehensive list can be found below.
 Income Exempt from Tax as Per Section 10
Most income that is exempted from tax is listed under Section 10 of the Income Tax Act. This
section contains a list of income that is deemed or considered to be free from taxation. Exempted
income specified under Section 10 is as follows:

Section 10(1) Income earned through agricultural means

Section 10(2) Any amount received by an individual through a coparcener from an HUF

Section 10(2A) Income received by partners of a firm, as shared between them

Section 10(4)(i) Any interest that has been paid to a person who is not a resident Indian

Section 10(4)(ii) Any interest that has been paid to the account of a person who is not a resident

Section 10(4B) Any interest that has been paid to a person who is not a resident Indian, but of I

Section 10(5) Concession on travel given to an employee who is also a citizen of India

Section 10(6) Any income earned or received by a nonIndian citizen

Section 10(6A), (6B), (6BB), (6C) Government tax paid on the income of a foreign firm

Section 10(7) Allowances received by government employees stationed abroad

Section 10(8) Income earned by foreign employees in India under the Cooperative Technical

Section 10(8A) Income earned by a consultant

Section 10(8B) Income earned by a consultant's staff or employees

Income earned by any family member of a foreign employee in India under the
Section 10(9)
Assistance Program
Section 10(10) Gratuity

Section 10(10A) The commuted value of the pension earned by an individual

Section 10(10AA) Any amount earned via encashment of leave at the time of retirement

Section 10(10B) Compensation paid to workers due to relocation

Section 10(10BB) Any remittance obtained as per the Bhopal Gas Leak Disaster Act 1985

Section 10(10BC) Any compensation obtained in the event of a disaster

Section 10(10C) Compensation in lieu of retirement from a PBC or any other firm

Section 10(10CC) Any income received through taxation on perquisites

Section 10(10D) Any amount acquired via a Life insurance policy

Section 10(11) Any payment received via the Statutory Provident Fund

Section 10(12) Any payment received via a recognised or authorised Fund

Section 10(13) Any payment received through a Superannuation Fund

Section 10(13A) House Rent Allowance

Section 10(14) Allowances utilised to meet business expenses

Section 10(15) Income received in the form of interest

Section 10(15A) Income received by an Indian firm through the lease of an aircraft from a foreig

Section 10(16) Income in the form of a scholarship

Section 10(17) Allowances granted to MLCs, MLAs or MPs

Section 10(17A) Income received in the form of a government award

Income received in the form of pension by winners of awards

Section 10(18)
for heroism

Income received by family members of the armed forces in

Section 10(19)
the form of pension

Section 10(19A) Income received from a single palace of an exruler

Section 10(20) Income received by a localised body or authority

Section 10(21) Income received by an association involved with scientific research

Section 10(22B) Income earned by a news or broadcasting agency

Section 10(23A) Income earned by certain Professional Institutes

Section 10(23AA) Income acquired through Regimental Fund

Section 10(23AAA) Income acquired through an employee welfare fund

Section 10(23MB) Insurance pension fund income

Section 10(23B) Income earned by village industry development institutions

Section 10(23BB) Income earned by state level Khadi and Village Industries Board

Income earned by regulatory bodies of institutions affiliated

Section 10(23BBA)
with religion and charity

Section 10(23BBB) Income received by the European Economic Community

Section 10(23BBC) Income received through SAARC funded regional projects

Section 10(23BBE) Income received by the IRDA

Section 10(23BBH) Income received through Prasar Bharti

Section 10(23C) Income received by any individual through certain specified funds

Section 10(23D) Income earned via Mutual Funds

Section 10(23DA)j Income earned via a Securitisation Trust

Section 10(23EA) Income earned through an IPF

Section 10(23EB) Income received by the Credit Guarantee Trust for Small Industries

Section 10(23ED) Income exemption of IPF

Income exemption of specified income received by Venture

Section 10(23DFB)
Capital Firms, Funds or Businesses

Section 10(24) Income earned by authorised trade unions

Section 10(25) Income earned via provident funds and superannuation funds

Section 10(25A) Income earned via Employee's State Insurance Fund

Section 10(26), 10(26A) Income earned by Schedule Tribe Members

Objectives of Auditing
Mainly, there are two objectives of accounting that are discussed in detail below:
1. Detection and Prevention of Errors
 Checking and Vouching: This fundamental audit procedure involves
examining evidence that supports transactions and balances. Auditors verify
the accuracy of transactions recorded in the financial statements against
invoices, receipts, contracts, and other documentary evidence.
 Thorough Examination of Ledger Accounts: Auditors
review ledger accounts for unexplained entries, missing documentation, or
entries that do not match supporting documents. This includes a detailed
 analysis of journal entries, especially at the end of reporting periods, for any
unusual or irregular transactions.
 Analytical Review: By performing analytical procedures, auditors compare
current period figures with those of previous periods, budgets, and industry
norms to identify variances that may indicate errors. This can involve ratio
analysis, trend analysis, and other financial analysis techniques.
 Reconciliation and Cross-Verification: Auditors reconcile various accounts,
such as bank statements with cash book entries, to detect discrepancies. They
also cross-verify financial information across different sections of the financial
statements to ensure consistency and accuracy.
2. Detection and Prevention of Fraud
Another objective of auditing is detecting fraud and preventing it. Fraudulent activities
in financial reporting are not only a breach of trust but also a significant legal and
financial risk for organizations. The detection and prevention of fraud is important to
safeguard the assets of an organizations and thus, maintain investor confidence. Here
is a detailed look at the components:
 Manipulation, Falsification, or Alteration of Records or Documents:
Auditors check financial records and supporting documents for any
irregularities or inconsistencies that may indicate tampering. This scrutiny
involves comparing documents with external records, checking signatures, and
verifying the sequence of transactions.
 Misappropriation of Assets: To detect asset misappropriation, auditors
perform physical inspections of assets, reconcile inventory counts, and review
access controls. They also analyze patterns in transactions that might suggest
embezzlement, such as unusual adjustments or write-offs.
 Suppression of Transactions: Auditors look for unrecorded transactions by
reviewing bank reconciliations, confirming transactions with third parties, and
analyzing discrepancies between actual and recorded transactions. This helps
in identifying omitted transactions that could distort the financial outcome.
 Recording Transactions without Substance: This involves verifying the
existence and rights to transactions recorded in the financial statements.
Auditors may confirm transactions with third parties, review contracts, and
assess the economic rationale behind transactions. This is done to ensure
they have a genuine business purpose.
 Misapplication of Accounting Policies: Auditors evaluate the organization's
accounting policies for compliance with applicable standards. This includes
assessing judgments and reviewing changes in accounting policies. It also
involved understanding the reason behind such changes.
Advantages of Auditing
Auditing should be conducted for the following reasons:
 Auditing verifies the accuracy of financial statements, ensuring they reflect the
actual financial position and performance of the organization.
 Investors, creditors, and other stakeholders gain confidence in the financial
information, which is crucial for making informed decisions.
 Auditing helps in identifying and correcting errors and detecting fraudulent
activities, protecting the organization's assets.
  It checks for compliance with relevant laws and accounting standards,
reducing the risk of legal penalties and fines.
 The audit process can reveal weaknesses in internal controls, leading to
recommendations for strengthening these systems.
 Audited financial statements can make it easier for businesses to obtain loans
and attract investment by demonstrating financial health.
 For public companies, auditing enhances credibility with the market, potentially
leading to a higher valuation.
 Auditing ensures that the financial records are in order, which simplifies the
process of filing tax returns and reduces the risk of tax disputes.
 Accurate financial statements enable management to make better strategic
decisions, plan future activities, and allocate resources effectively.
 Regular audits promote accountability and transparency within the
organization, encouraging ethical financial practices.
Limitations of Auditing
Auditing has the following limitations:
 Expensive: Continuous auditing leads to higher costs. This is due to frequent
auditor visits and the need for specialized software. In case of small cap
organizations, recurring audits are a difficult task since it may become out of
budget. It becomes less suitable for small organizations. They often have
limited budgets.
 Dislocation of Routine Work: The regular presence of auditors disrupts
normal business operations. Employees must allocate time to assist with
audits. This affects productivity and the smooth flow of office work as the
workforce is diverted from their regular duties.
 Alteration of Figures: There is a risk that employees might fraudulently alter
financial records. This can happen after the records have been audited.
Employees may attempt to cover up discrepancies or misdeeds. This
undermines the audit's purpose.