Auditing means checking financial records, book keeping and books of accounts with applicable laws. A Chartered accountant who is in practice carries out the tax audit which checks the accuracy of financial statements. This happens in all the companies at the end of the financial year. The last date which is considered each and every year is 30th of September. Generally, the income tax which the assessee pays is based on a proper self assessment by the assessee. An income tax viewpoint is there in performing a tax audit.
A proprietorship firm has very little regulatory compliance requirements. This kind of registration will be helpful for the entrepreneurs or businessman who initially wants to start a small business with few clients. It is known as an unregistered business entity. The micro and small businesses prefer proprietorship for registration in the organized sector. The person who is one person owner here that is the proprietor and the proprietorship firm has the same legal entity. In case of any liabilities happening in business, the proprietor is liable for it because it is on the basis of his documents such as PAN and others, the registration takes place.
Necessity for Audit in Proprietorship- Elaboration
This depends upon the annual turnover of the proprietorship and on the basis of that auditing is required. There are three different situations where an audit needs to be done:
Now the first question which comes up is when is audit necessary?
- A tax audit is necessary for a proprietorship firm when the gross receipt or turnover exceeds Rs 1 crore in a financial year.
- A tax audit is absolutely mandatory if the gross receipts exceed Rs 50 lakhs in case of a professional income.
- If a presumptive taxation scheme is opted by a person and it is below the limits of taxable income, then this tax income exceeds the basic threshold limit.
Under the Income Tax act, 1961, the rules are to be followed properly under this act. It is very essential to have a certified chartered accountant to make the audit. The accounts and the books are to be maintained and all the compliances should be followed strictly. Every company has to maintain books of accounts and audit its books under Companies Act.
There are some consequences:
If any person fails or passes the deadline to audit its books, then he or she will be liable to a penalty of 0.5% of total sales. If any gross receipt or turnover is lower than 1,50,000, actions will be taken without any reasonable cause.
Proprietorship follows three types of Audit:
- GST Audit: This kind of audit and its records are verified by a registered person who is in charge of this. This also needs to be checked whether refund has been claimed or due tax has been paid. This audit is only for following registered persons, that is, if the gross receipts in a financial year exceeds Rs 2 crore. The GST department has to pass an order for conducting any kind of GST Audit.
- Cost Audit: Under Table (A) Rule 3 of Regulated Sectors, every company has to follow Cost Audit. This is followed by a few things. The cost audit is applicable if annual turnover is the total of all products and services. This immediately proceeds FY. If the gross receipts of annual turnover is Rs 50 crore or more, cost records are required to be maintained for an aggregate turnover of products and services. Cost audit will be applicable if cost audit is Rs 25 crore or more.
- Secretarial Audit: This audit is a bit different. It is applicable if the company is a listed company. It is carried out by the Company Secretary in practice. Public company follows a secretarial audit if the turnover is Rs 250 crore or more and paid up share capital is Rs 50 crore or more.
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