Overview:

One of the most important compliances that a corporate entity needs to comply it to make sure that the records such as financial statements and related works are performed as and when required to do so. This is regulated either by the government or by the respective board of directors. This article will give a brief note on what auditing is and how does it work in the corporate environment.Are you planning to start a company in India but don’t know how to start? We agree that starting a new business in any country could be a herculean task with so many unanswered questions in your mind. Amidst so much stress, you will not be able to single-mindedly focus on the documentation needed for company registration. But not to fret! Read on to find out a detailed step-by-step process for company registration in India.

What is an audit?

Before looking into what internal auditing is, let us make sure that there is a clear understanding of what auditing is and how does that functions in a corporate system of a company. The audit is the term that is mostly linked to the financial statement audit of a company. So, auditing is nothing but the critical appraisal or analyzing these financial statements of the company on a yearly basis to ensure that there are no illegitimate activities that happen within such financial system of the company, thereby making sure that the financial records of the company are fair and accurate in nature. Such auditing shall be done by an auditor functioning and certified for such purpose. The audit is classified into three types – Internal Audit, external audit and Internal Revenue Service audit. Internal audits of a company shall be done solely by the company and its management through its own measures. This means that auditors are appointed by the company itself, and their reports are provided directly to the company’s board of directors. This, of course, shall be referred to further in this article. Secondly, an External audit which is contrary to the internal audit, is done by the auditors who are not parties to the respective auditors of the concerned company. The purpose of this kind of external audits is to make sure there are no biases in the process of reviewing or analyzing the company’s financials or the misstatements in the financial statements. Thirdly, an Internal Revenue Service audit is an audit where their purpose is to analyze the accuracy or the certainty of any taxpayer’s return individually or in any corporate organization.
  • Internal Audit:
Let us look into what internal audit would mean. In general terms, internal auditing is nothing but the auditing that shall be done for the internal matters of the company.
As the auditing is done to the company which is formed under the Companies act of 2013, the internal audit shall also be defined under the companies act of 2013. Section 138 of the companies act defines the term internal audit, which states that an internal audit of a company shall be conducted by an internal auditor who is either a chartered accountant or a cost accountant or any of the professionals decided for such purpose as may be decided by the board of directors. The audit is for the functions and the activities of the company concerned. On the other hand, such manner and the interval of internal auditing shall be prescribed by the union government of India and shall be reported to the board of the company.
What do you think would be the reason for such an internal audit? As per the website of the Controller and Auditor General of India, internal audit has the most important role in the internal functioning of the company or its management. The purpose of such internal auditing is to make a critical appraisal of the functioning of the corporate entity in concern and to suggest the changes or improvements in order to ensure internal stability and to add value to the overall corporate governance mechanism of the company. Making sure the internal audit of the company is going well, will also ensure that rules, regulations and guidelines have also been compiled with properly. 
  • Service Tax Audit:​

Having seen what internal audit is, let us look into the next subtopic, which deals with a service tax audits. What does service tax audit mean? As we know, service taxes should be paid by the service providers of the country to its respective authorities as per the income tax act of 1961. This means that, as part of indirect taxation, service taxes are levied on the service providers, who will again shift the same on the consumers of the service. So, any audit that is done to these service taxpayers is referred to as service tax audits, which is a must for all the taxable service as per government regulations and the rules. Looking into the respective legal provision and the respective legislation, the Finance act of 1994 deals with the central excise as well as service tax. Section 65(121) of the finance act of 1994 states that the rules and the regulations as mentioned under chapter 5 of the finance act, which applies to the central excise act of 1944, shall apply to service tax as they apply in relation to a duty of excise. 

 Along with the finance act of 1994, service tax rules also provides for the rules and regulation relating to the service tax audit in India. Rule 2(2) of the service tax rules of 1994 deals with service tax rules. It is important to note that the definition of central excise officer under the central excise officer of 1944 shall apply to the officer who performs the functions of service tax audit under the act. Thus he has been referred to be the proper officer when it comes to a service tax audits. The question of whether there should be any records possessed by the taxpayer or not has not been provided in the finance act read with the rules of 1944. The auditor who performs the service tax audit here shall have the power to summon for the purpose of conducting the audit.