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1、Preparing for Audit in IndiaAn Introduction to Auditing in IndiaPreparing for the GST AuditTechnology-Enabled Changes in the Audit Compliance LandscapePg 04Pg 15Pg 19Issue 54 August 2023|www.india-From Dezan Shira&Associates IndIa BrIefIng Issue 54 August 20232IntroductionCreditsPublisher-Asia Brief

2、ing Media Ltd.Lead Editor-Melissa CyrillContributors-Divyansh Shrivastava,Neeraj KhatriDesigner-Aparajita Zadoo,Miguel AncianoUnderstanding different audit types is crucial for business credibility and financial health.Whether conducted internally or by a third party,audits assess company performanc

3、e,enhance efficiency,and ensure compliance with relevant laws.In India,the audit landscape encompasses statutory,internal,and cost audits under the Companies Act,2013,GST audits post-GST law implementation,and tax audits under Section 44AB of the Income-tax Act,1961.In this India Briefing Magazine i

4、ssue,we provide readers with an overview of Indias audit types and processes,outlining general requirements and materials to be prepared.We highlight the role of the auditor and significance of diverse audit reports for effective business management,error identification,and to meet tax and regulator

5、y norms.We also discuss the GST audit process and transfer pricing reporting requirement.Lastly,we introduce some of the latest tech-driven audit innovations and detail a recent mandate from Indian authorities to enable audit trails in business management software.At Dezan Shira&Associates,we have a

6、 dedicated team of accounting and legal professionals in India with extensive experience in helping foreign enterprises ensure compliance.If you have any questions or require assistance with Annual Statutory Audit,GST Audit,Bookkeeping,Financial Reporting,or other compliance matters,please feel free

7、 to contact our offices in India or email us at .ROHIT KAPURManaging DirectorDezan Shira&AssociatesNew Delhi Owww.india-www.vietnam-www.asiainvestmentresearch.orgwww.china-www.russia-With kind regards,Rohit Kapur IndIa BrIefIng Issue 54 August 20233Asia Briefing Ltd.Unit 507,5/F,Chinachem Golden Pla

8、za,77 Mody Road,Tsim Sha Tsui East Kowloon,Hong Kong.Annual SubscriptionIndia Briefing Magazine is published five times a year.To subscribe,please visit please explore the clickable resources below.Preparing for Audit in IndiaContentsAn Introduction to Auditing in IndiaPg 04Preparing for the GST Aud

9、itPg 15Technology-Enabled Changes in the Audit Compliance LandscapePg 19ReferenceIndia Briefing and related titles are produced by Asia Briefing Ltd.,a wholly owned subsidiary of Dezan Shira Group.Content is provided by Dezan Shira&Associates.No liability may be accepted for any of the contents of t

10、his publication.Readers are strongly advised to seek professional advice when actively looking to implement suggestions made within this publication.For queries regarding the content of this magazine,please contact:All materials and contents 2023 Asia Briefing Ltd.Like India Briefing on FacebookFoll

11、ow India Briefing on TwitterConnect with Dezan Shira&Associates on LinkedinView Dezan Shira&Associates on Youtube Follow UsScan the QR code to follow us on WeChat and gain access to the latest investor news and resourcesConnect with us for the latest news,events and insights across Asia.Legal,Tax,Ac

12、counting Newswww.india- and W S Advisory and C IndIa BrIefIng Issue 54 August 20234An Introduction to Auditing in IndiaAudits serve the crucial purpose of determining the accuracy and fairness of a companys financial statements.In accordance with the Companies Act,2013,specific classes of companies

13、are required to appoint auditors to conduct audits of their functions and activities.Indias Company law prescribes four main types of audits for companies:statutory audit,internal audit,cost audit,and secretarial audit.Additionally,the Income Tax Act,1961,under section 44AB,outlines the provisions f

14、or income tax audit,which assesses the accuracy of income tax returns filed by individuals or companies for a given assessment year.We introduce the concept of each type of audit and explore the classes of companies obligated to conduct audits and appoint auditors in this chapter.Types of auditsStat

15、utory auditThe primary purpose of a statutory audit is to Audits are vital for ensuring transparent,accountable,and reliable financial information within organizations.Indian regulations mandate different types of audits and government scrutiny over financial reporting continues to be dialed up.Busi

16、nesses are advised to align their reporting obligations with auditor demands to meet regulatory standards.Chapter 1verify whether a company presents an accurate representation of its financial situation by examining crucial information,such as books of account,bank balance,and financial statements.A

17、ll public and private limited companies are required to undergo a statutory audit.Irrespective of their business nature or turnover,these companies must have their annual accounts audited each financial year.Limited liability partnership firms(LLPs)are subject to a statutory audit only if their turn

18、over in any financial year exceeds INR 4 million(US$55,945)or their capital contribution exceeds INR 2.5 million(US$34,963).Upon registration of a company,it must appoint an auditor within 30 days during its first board meeting.At each Annual General Meeting(AGM),the shareholders of the company appo

19、int an auditor who holds the position from one AGM to the conclusion of the next AGM.The Companies(Amendment)Act,2017 specifies that auditors can only be appointed for a maximum term of five consecutive AGMs.Their Melissa CyrillAuthor IndIa BrIefIng Issue 54 August 20235appointment does not need to

20、be ratified in each AGM.However,for individual and partnership firms,auditors cannot be appointed for more than one or two terms,respectively.Qualifications for statutory auditorsAs per the law,only an independent chartered accountant firm,a chartered accountant,or a limited liability partnership fi

21、rm with a majority of partners practicing in India are eligible to be appointed as an auditor for a company.The Companies Act,2013 specifically disqualifies the following individuals from becoming auditors:Corporate bodies,except for LLPs registered under the Limited Liability Partnership Act,2008.O

22、fficers or employees of the company.Any partner of the company and any person whose relative is a director or is in the employment of the company as a director or key managerial personnel.Individuals who are indebted to the company for a sum exceeding INR 1,000(US$14)or have guaranteed to the compan

23、y on behalf of another person a sum exceeding INR 1,000(US$14).Individuals who have held any securities in the company after one year from the date of commencement of the Companies(Amendment)Act,2000.Individuals who have been convicted of an offense involving fraud,and a period of 10 years has not e

24、lapsed from the date of such conviction.CARO 2020In February 2020,the Ministry of Corporate Affairs(MCA)introduced a new format for statutory audits of companies through the Companies(Auditors Report)Order,2020(CARO 2020).This order replaced the earlier Companies(Auditors Report)Order,2016.CARO 2020

25、 requires auditors to report on various aspects of the company,including fixed assets,inventories,internal audit standards,internal controls,statutory dues,among others.It applies to all statutory audits commencing on or after April 1,2020(corresponding to the financial year 2019-20).However,compani

26、es previously excluded from CARO 2016,such as one-person companies,banking and insurance companies,small companies,etc.,would continue to be excluded from CARO 2020.Furthermore,the MCA announced additional amendments to Schedule III of the Companies Act,2013,effective from April 1,2021.The primary o

27、bjective behind the amendments is to enhance compliance stringency and incorporate several additional disclosures in the Financial Statements.Internal auditInternal audit is mandated by Section 138 of the Companies Act,2013,for certain categories of companies falling within the prescribed threshold.

28、Its primary purpose is to assess the financial health and operational efficiency of a company.As an independent function of management,it continuously and critically evaluates the entitys operations,with a specific focus on identifying areas for improvement and strengthening governance mechanisms to

29、 add value.The Institute of Chartered Accountants of India defines the role of internal audit as providing independent assurance that an organizations risk management,governance,and internal control processes operate effectively.Unlike external audits,internal auditors go beyond financial risks and

30、statements and consider broader issues,including the organizations reputation,growth,environmental impact,and treatment of employees.IndIa BrIefIng Issue 54 August 20236Applicability of internal auditsAn internal audit must be conducted by either a chartered accountant or a cost accountant.However,n

31、ot all companies are required to conduct internal audits.The Companies Act,2013,and Rule 13 of the Companies(Accounts)Rules,2014,mandate internal audits for the following classes of companies:Every listed company.Every unlisted public company with a paid-up capital exceeding INR 500 million(US$7 mil

32、lion)in the previous financial year.Every unlisted public company with a turnover greater than INR 2 billion(US$28 million)in the previous financial year.Every unlisted public company with outstanding loans and liabilities exceeding INR 1 billion(US$14 million)at any point during the previous financ

33、ial year.Every unlisted public company with outstanding deposits exceeding INR 250 million(US$3.5 million)in the previous financial year.Every private company with a turnover of more than INR 2 billion(US$28 million)in the previous financial year.Every private company that has had outstanding loans

34、and liabilities exceeding INR 1 billion(US$14 million)at any point.Complying with the internal audit requirements ensures that these companies maintain a robust evaluation of their operations and corporate governance practices.Secretarial auditSecretarial audit is a crucial requirement for certain b

35、usinesses in India to ensure compliance with key company legislation and corporate governance rules.Failure to conduct the secretarial audit and submit the secretarial compliance report may lead to non-compliance.Who requires a secretarial audit?As per Section 204(1)of the Companies Act,2013,every l

36、isted company and the following class of companies are required to submit a Secretarial Audit Report signed by a Company Secretary in Practice along with the Board Report as per Section 134(3),Companies Act,2013:Public companies with a paid-up share capital of INR 500 million(US$7.03 million)and abo

37、ve.Public companies with a turnover of INR 2.5 billion(US$35.02 million)or more.Every company with outstanding loans or borrowings from banks or public financial institutions of INR 1 billion(US$14.08 million)or more per provisions of Section 204 of the Companies Act.This requirement considers the p

38、aid-up share capital,turnover,or outstanding loans or borrowings as of the last date of the latest audited financial statement.Per the amendment to Rule 9(1),this does not cover loans from directors,body corporates,related parties,or deposits received under Chapter V of the Companies Act,2013.The se

39、cretarial audit is conducted by a practicing company secretary(PCS),who prepares the audit report.It is worth noting that companies not covered under Section 204 of the Companies Act,2013,have the option to obtain a secretarial audit report voluntarily.This voluntary audit provides independent assur

40、ance of the companys compliance status.Cost auditCost audit involves the verification of a companys IndIa BrIefIng Issue 54 August 20237cost accounts and serves as a check on its compliance with cost accounting standards.Cost accounting helps understand the total cost of production by analyzing vari

41、able and fixed costs.Through a cost audit,companies can closely examine their production costs and find effective ways to reduce expenses related to labor,materials,and overheads.Who should maintain cost records?Companies are required to maintain cost records under the following circumstances:If the

42、 company is engaged in the production of goods or providing services as prescribed by the law.If the companys overall turnover from all its products and/or services amounts to INR 350 million(US$4.9 million)or more during the immediately preceding financial year.Mandatory cost records auditCompanies

43、 in India must get their cost records audited in the following cases:The overall annual turnover from all the companys products and services during the immediately preceding financial year is either INR 500 million or INR 1 billion(US$7 million or US$14 million),depending on whether the company oper

44、ates in a regulated or unregulated sector.The aggregate turnover of the products and services for which cost records are required to be maintained amounts to either INR 250 million or INR 350 million(US$3.5 million or US$4.9 million),depending on the companys sector regulation.Classification of indu

45、strial activityThe Companies Act classifies company industrial activity into two categories:regulated and unregulated sectors.Regulated sectors include industries such as petroleum products,drugs and pharmaceuticals,fertilizers,and sugar,among others.Unregulated sectors encompass industries like arm

46、s and ammunitions,cement,tea and coffee,milk products,turbo jets,and propellers,among others.Exemption from cost auditCertain companies are exempt from the cost audit requirement,including:Companies covered under Rule 3 of the Companies(Cost Records and Audit)Rules,2014.Companies with revenue from e

47、xports in foreign exchange exceeding 75 percent of their total revenue.Companies operating in special economic zones(SEZ).Tax auditTax audit serves several essential objectives to ensure the proper functioning of businesses.Firstly,it aims to ensure the accurate and well-maintained books of accounts

48、,which are verified and certified by a tax auditor.Secondly,the tax auditor meticulously examines the books of accounts and highlights any observations or discrepancies found during the audit process.Thirdly,the tax audit report includes prescribed information,such as tax depreciation,and compliance

49、 with various provisions of income tax law.These objectives collectively enable tax authorities to verify the accuracy of income tax returns filed by taxpayers,making the calculation and verification of total income and deductions smoother and more efficient.Conducting a tax audit is a crucial step

50、for businesses to maintain compliance and accuracy in their financial reporting,ensuring transparency and adherence to tax laws and regulations.IndIa BrIefIng Issue 54 August 20238Overview of Financial Reporting Requirements for Different Entities in IndiaType of auditauditScope of auditStandards to

51、 complyWho conducts the audit?Who is the report submitted to?Statutory auditAudit of the financial records and statements of the companyAuditing standards recommended by Institute of Chartered Accountants of India(ICAI)A chartered accountant(CA)(Excluding the statutory auditor of the company);or A c

52、ost accountant;or A professional decided by the Board.MembersInternal auditAudit of the functions and activities of the companyNA A CA(excluding the statutory auditor of the company);or A cost accountant;or A professional decided by the Board.Board of DirectorsSecretarial audit Reporting on the comp

53、liance of five laws as mentioned in Form MR-3 Reporting on the compliance of secretarial standards issued by the Institue of Company Secretaries of India Monitoring and ensuring compliance with general laws,such as labor laws,competition laws,and environmental laws Examining and reporting on the spe

54、cific observations or qualification,reservations or adverse remarks in respect of the board structures/system and processes relating to the audit periodAuditing Standards recommended by the Institute of Company Secretaries of India(ICSI)A practicing company secretary(CS)MembersCost auditAudit of the

55、 cost records of the companyCost auditing standards issued by the Institute of Cost and Works Accountants of IndiaA practicing cost accountantBoard of DirectorsWho needs a tax audit?A taxpayer is obligated to undergo a tax audit if their businesss sales,turnover,or gross receipts exceed INR 10 milli

56、on during the financial year.Additionally,there may be certain other circumstances where a taxpayer is required to get their accounts audited.The different scenarios have been categorized in the tables provided below.IndIa BrIefIng Issue 54 August 20239Recent amendmentsThe Finance Act 2020 initially

57、 raised the tax audit threshold from INR 10 million to INR 50 million for the assessment year 2020-21(FY 2019-20).To be eligible,cash receipts and payments were to be within 5 percent of gross receipts/turnover for the enterprise.The Finance Act 2021 later increased this threshold to INR 100 million

58、 from April 1,2021,with the same 5 percent cash transaction cap.These changes ease tax audit burdens for small to medium-sized businesses meeting the specified conditions related to cash receipts and payments.Penalty for non-complianceIn case of non-compliance with the tax audit provisions or failur

59、e to conduct a tax audit,a penalty of 0.5 percent of total sales,not exceeding INR 150,000,will be imposed on the company or individual.Tax audit reportThe tax audit must be carried out by a practicing licensed chartered accountant.The auditor is required to submit the tax audit report in one of the

60、 following formats:Form 3CA:When a company is already mandated to get its accounts audited under the Companies Act,2013;or Form 3CB:When a company or an individual gets their accounts audited under Section 44AB of the Income-tax Act,1961.Transfer pricing report All taxpayers,without exception,are re

61、quired to obtain an independent accountants report for international transactions between associated enterprises or specified domestic transactions.This report must be provided by the deadline for filing the tax return.Deadline for transfer pricing audit For individuals engaged in international tran

62、sactions or specified domestic transactions under section 92E of the Income-tax Act,1961,the report from an accountant must be furnished by October 31,2023,for FY 2022-23.In the case of assesses subject to transfer pricing regulations,the due date to submit the Return of Income for Assessment Year 2

63、023-24 is November 30,2023.Form 3CEB must be filed.The auditors reportAudit reports provide the auditors opinion based on their review and analysis of a firms financial statements.These reports serve as valuable tools for investors to assess the financial performance and position of the company for

64、potential investment opportunities.Likewise,company directors and shareholders rely on them to gauge the managements integrity and the transparency of financial statements.To ensure the credibility of an auditors report,investors must confirm that the report comes from an independent audit firm.Diff

65、erent types of audit opinions carry varying levels of assurance and convey distinct messages to users.Auditors may issue one of four opinions:unqualified,qualified,adverse,or disclaimer of opinion.These opinions IndIa BrIefIng Issue 54 August 202310Category of personThreshold for tax audit in IndiaB

66、usinessFor businesses not opting for the presumptive taxation scheme,the tax audit is mandatory under the following conditions:Total sales,turnover,or gross receipts exceed INR 10 million in the financial year.If cash transactions are up to 5%of total gross receipts and payments,the threshold limit

67、for tax audit is increased to INR 100 million,effective from the financial year 2020-21.For businesses eligible for presumptive taxation under Section 44AE,44BB,or 44BBB,the requirement for tax audit arises if they claim profits or gains lower than the prescribed limit under the presumptive taxation

68、 scheme.For businesses eligible for presumptive taxation under Section 44AD,a tax audit is required if they declare taxable income below the limits prescribed under the presumptive tax scheme and their income exceeds the basic threshold limit.For businesses that are not eligible to claim presumptive

69、 taxation under Section 44AD due to opting out during any one financial year within the lock-in period of 5 consecutive years from when the presumptive tax scheme was opted,a tax audit is required if their income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax ye

70、ars from the financial year when the presumptive taxation was not opted for.For businesses that are declaring profits as per the presumptive taxation scheme under Section 44AD,a tax audit is required if their income exceeds the maximum amount not chargeable to tax in the subsequent 5 consecutive tax

71、 years from the financial year when the presumptive taxation was not opted for.For businesses declaring profits as per the presumptive taxation scheme under Section 44AD,a tax audit will not be applicable if the total sales,turnover,or gross receipts do not exceed INR 20 million in the financial yea

72、r.In such cases,businesses meeting this sales threshold are exempt from the requirement of undergoing a tax audit,ensuring ease of compliance for smaller enterprises.Profession For individuals engaged in a profession,a tax audit is required if their total gross receipts exceed INR 5 million in the f

73、inancial year.When their professional earnings surpass this specified threshold,they must undergo a tax audit to ensure accurate reporting of income and compliance with tax regulations.For individuals engaged in a profession eligible for presumptive taxation under Section 44ADA,a tax audit is requir

74、ed if they claim profits or gains lower than the prescribed limit under the presumptive taxation scheme or if their income exceeds the maximum amount not chargeable to income tax.The tax audit becomes essential in such cases to verify the accuracy of income reporting and ensure compliance with tax l

75、aws and regulations.Business loss If a business incurs a loss and does not opt for the presumptive taxation scheme,a tax audit is required if the total sales,turnover,or gross receipts exceed INR 10 million.In such situations,the business must undergo a tax audit to ensure proper financial reporting

76、 and compliance with tax regulations,even in the event of a loss.If a taxpayers total income exceeds the basic threshold limit but they have incurred a loss from carrying on a business(not opting for the presumptive taxation scheme),a tax audit under 44AB is required if the sales,turnover,or gross r

77、eceipts from the business exceed INR 10 million.If a business is opting for the presumptive taxation scheme under section 44AD and has a business loss but its income falls below the basic threshold limit,a tax audit is not applicable.In such cases,the business is not required to undergo a tax audit,

78、as its income is below the specified threshold,providing relief from the audit requirement despite the business loss.If a business is carrying on the presumptive taxation scheme under section 44AD and incurs a business loss,but its income exceeds the basic threshold limit,it is required to declare t

79、axable income below the limits prescribed under the presumptive tax scheme.In such situations,the business must ensure that its reported taxable income falls within the prescribed limits of the presumptive tax scheme,even when facing a business loss and having income exceeding the basic threshold li

80、mit.This is essential to comply with tax regulations and accurately report the income for tax purposes.IndIa BrIefIng Issue 54 August 202311below the gross profit line,resulting in misleading gross profit figures.Limitations on audit scope,which means the auditors may not have had access to specific

81、 financial data.Doubts about the accuracy of specific financial data,such as a significant number of unverifiable inventories in the opening balance of the entity.Adverse opinionAn adverse opinion is rendered when the financial statements do not fairly represent the entitys financial positions,resul

82、ts,and cash flows.The adverse opinion may be issued if:There are limitations on the scope of the auditors work,meaning that certain areas of the companys financial records were not thoroughly examined.Certain required disclosures are missing from the financial statements,or there is disagreement wit

83、h management regarding the acceptability of the accounting policies selected and their method of application.AUDIT AND FINANCIAL REVIEWOur audit services,conducted by qualified regional teams,offer numerous advantages for your business.With expertise in International Financial Reporting Standards(IF

84、RS)reporting and country-specific Generally Accepted Accounting Principles(GAAP)standards,our auditors are well-equipped to enhance your businesss financial accountability.Leverage our localized expertise,aligned with global standards,to enhance your businesss accountability.EXPLORE MOREdetermine wh

85、ether the financial statements adhere to Generally Accepted Accounting Principles(GAAP)and whether they fairly represent the entitys financial accounts.Unqualified opinionThe unqualified opinion is considered the most favorable audit outcome for a company.It is expressed by an independent auditor wh

86、en the financial records and statements of the company present a true and fair view and adhere to the accounting principles generally accepted in India.In essence,an unqualified opinion confirms the following key points:Consistent application of GAAP norms in preparing financial statements.Complianc

87、e of financial statements with relevant statutory requirements and regulations.Adequate disclosure of all material matters necessary for the proper presentation of financial information(subject to statutory requirements).Proper verification and determination of any changes in accounting principles o

88、r application methods,as reflected in the companys financial statements.Qualified opinionOn the other hand,a qualified opinion is issued when the auditor is not entirely confident in the fair representation of the financial statements and identifies areas of non-compliance with GAAP.An auditor may i

89、ssue a qualified opinion under the following circumstances:Misstatement or misclassification of accounting entries,such as an expense incorrectly placed IndIa BrIefIng Issue 54 August 202312Sample Format:Independent Auditors ReportAddressee:Members of XXX COMPANY LIMITEDIntroductory Paragraph:We hav

90、e audited the accompanying standalone financial statements of XXX COMPANY LIMITED(“the Company”),which comprise the Balance Sheet as at 31st March,20XX,the Statement of Profit and Loss,the Cash Flow Statement for the year then ended,and a summary of the significant accounting policies and other expl

91、anatory information.Managements Responsibility:It is the responsibility of the management to prepare its financial statements in compliance with the financial reporting framework.They need to establish appropriate systems to minimize errors,detect and mitigate fraud.Efficient internal controls are t

92、o be implemented and governed by management to establish quality control throughout its operations and increase accuracy in all departments.Auditors Responsibility:The auditor is responsible for conducting the audit in accordance with established Standards on Auditing and expressing a true opinion o

93、n the financial statements.To ensure that the financial statements are free of any misrepresentations,the auditor collects reasonable evidence to support an opinion.It is the responsibility of the auditor to plan and perform the audit with professional integrity.Auditors Opinion:In our opinion and t

94、o the best of our information and according to the explanations given to us,the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India,of the s

95、tate of affairs of the Company as at 31st March,20XX,and its profit/loss and its cash flows for the year ended on that date.Other Reporting Responsibilities(Optional):Include any other reporting responsibilities here if applicable.Signature of the Auditor:Name of the AuditorName of the Audit FirmICA

96、I Registration Number of the Audit FirmDate of the Auditors Report:Date of the reports finalizationPlace of Signature:City where the report is signed IndIa BrIefIng Issue 54 August 202313 The entity has not prepared its financial statements in accordance with the provisions of the applicable account

97、ing framework.When an auditor issues an adverse opinion,the audit report includes a clear description of all the substantive reasons for the adverse opinion.Auditors may point out specific accounting errors or departures from GAAP in their report.An adverse opinion can have severe consequences for t

98、he reporting entity.It may result in the company being unable to issue financial statements to external parties like creditors,lenders,and investors.Additionally,if the audit uncovers any illegal activities,corporate officers may be held personally accountable.Disclaimer of opinionIn cases where an

99、auditor is unable to express an opinion on the financial statements,they may issue a disclaimer of opinion.This can occur when auditors doubt the reliability of the financial data,have limited scope,or cannot audit impartially.A disclaimer of opinion is issued when auditors lack sufficient support f

100、or their conclusions and refrain from providing an opinion in such instances.Standards of Auditing SA 701:Communicating key audit matters in the independent auditors reportSA 701 aims to provide users of financial statements with additional information to better understand critical matters deemed im

101、portant by the auditor during the audit of financial statements for the relevant period.By exercising professional judgment,the auditor highlights key audit matters,enhancing the communication value of the auditors report and promoting transparency about the audit process.Limitations of communicatin

102、g key audit mattersIt is essential to note that the communication of key audit matters in the auditors report does not serve as a replacement for the following disclosures:The disclosures made in the financial statements themselves.An auditors modified opinion,as required under SA 705(Revised),when

103、specific circumstances of the audit necessitate such expression.Reporting under SA 570(Revised)when significant uncertainties exist regarding conditions or events that may cast substantial doubt on the entitys ability to continue as a going concern,i.e.,its ability to operate indefinitely.Determinin

104、g key audit mattersThe auditor considers the following factors to determine key audit matters in the audit of financial statements for the relevant period:DOING BUSINESS IN INDIAThis comprehensive online Doing Business guide provides key economic,geographic,tax,and regulatory insights for foreign en

105、terprises,investors,managers,and expats to understand India and chart their path to a healthy business.Find spotlight and explainer articles,news,updates,factsheets,useful tools,and webinars featuring on-the-ground advisors.EXPLORE IndIa BrIefIng Issue 54 August 202314a.Areas assessed with a higher

106、risk of material misstatement or substantial risks identified as per SA 315.b.Significant judgments made by the auditor concerning areas in the financial statements where noteworthy management judgment was exercised,including accounting estimates associated with high uncertainty.c.The impact of subs

107、tantial transactions or events that occurred during the relevant period on the audit.Absence of key audit mattersIf there are no key audit matters that require communication based on the circumstances and facts of the audit and the entity,the auditor must explicitly state this fact separately in the

108、 Key Audit Matters section of the audit report.Applicability of anti-money laundering legislationFinancial transactions by chartered accountants,company secretaries,and cost and works accountants on behalf of clients now come under the Prevention of Money Laundering Act(PMLA),2002.The Ministry of Fi

109、nance has expanded the scope of PMLA(as of May 2023)to cover activities like property transactions,fund management,and business entity deals.The Finance Ministry also outlined the definition of relevant person under this law.It includes individuals who have obtained a certificate of practice under t

110、he Chartered Accountants Act,1949,and are practicing either individually or through a firm.Similarly,individuals with a certificate of practice under the Company Secretaries Act,1980,and More Entities Brought Under Indias Anti-Money Laundering RegimeChartered accountants,company secretaries,cost wor

111、k accountantsDirectors,secretaries of companies,partners of firmsIntermediaries in casinos and cryptocurrency or virtual digital assetsTrustees of express trusts,nominee shareholdersPeople arranging addresses,trustees for businessesIndividuals helping in formation of a companythe Cost and Works Acco

112、untants Act,practicing individually or through a firm,will also be governed by this new law.With the inclusion of CAs,CSs,and CMAs,they now become reporting entities for certain transactions.As reporting entities,these professionals are required to conduct KYC(Know Your Customer)for all clients enga

113、ged in the specified transactions and maintain records accordingly.While penalties are limited under Section 13 of the Act,the Enforcement Directorate can pursue legal action if theres a deliberate involvement in money laundering.Professional bodies like The Institute of Chartered Accountants of Ind

114、ia are expected to conduct awareness programs to ensure compliance and clarify the professionals roles in these transactions.IndIa BrIefIng Issue 54 August 202315Preparing for the GST AuditUnder Indias Goods and Services Tax(GST)system,taxpayers are responsible for self-assessing their tax liability

115、 and making tax payments without intervention from tax authorities.To ensure compliance,the law incorporates a robust audit mechanism.The GST audit primarily focuses on verifying the accuracy of information provided,taxes paid,refund claims,and input tax credit availed by individual taxpayers.Recent

116、 changes to GST audit normsEffective from the Finance Act of 2021,there have been significant changes to the GST audit requirements:Threshold limit:Any registered taxable person with an annual aggregate turnover exceeding INR 50 million during a financial year is now obligated to get their accounts

117、audited.Previously,this limit was set at INR 20 million.The GST audit ensures businesses are in full compliance with GST regulationstheir GST payments are timely and accurate,and their transaction records are precise.Additionally,the GST audit highlights areas where operational improvements can be m

118、ade,ultimately helping businesses enhance their profitability and efficiency.Chapter 21.Removal of compulsory auditor requirement:Taxpayers with a turnover exceeding INR 20 million are no longer required to undergo a compulsory GST audit conducted by a Chartered Accountant or a Cost and Management A

119、ccountant.2.Self-certification of Form GSTR 9C:Starting from FY 2020-21 onwards,taxpayers with a turnover exceeding INR 50 million are now required to self-certify and submit Form GSTR 9C.These changes aim to streamline the GST audit process and make it more efficient for taxpayers while still ensur

120、ing compliance with the GST regulations.Calculation of annual turnover for companies with multiple locationsFor companies operating in multiple locations,having subsidiaries or branches across the country,the computation of annual turnover must be done on an all-India PAN basis.Melissa CyrillAuthor

121、IndIa BrIefIng Issue 54 August 202316According to the GST Law,each entity of a company located in more than one state or union territory is considered distinct.Hence,if the company is registered in multiple states or union territories,and the total aggregate turnover from all these locations exceeds

122、 INR 50 million,then the entity must undergo state-wise accounts audit as per the GST law.The aggregate turnover includes the value of all exempt supplies and exports under the same PAN,considering the entire country.In cases where companies have multiple GSTIN(Goods and Services Tax Identification

123、Number)state-wise registrations under the same PAN,traders and dealers must internally derive their turnover for each GSTIN and declare the corresponding amount in the Form GSTR-9C.Additionally,companies with multiple registrations within the same state must maintain separate accounts.The GST law ma

124、ndates companies to file a reconciliation statement separately for each GSTIN registration within the state.This ensures compliance and accurate reporting for each location within the state.Filing GST auditTo complete the GST audit filing process,taxpayers are required to submit the following docume

125、nts electronically:Annual return:File the annual return using Form GSTR-9 by December 31 of the subsequent financial year.Audited annual accounts:Provide a copy of the audited annual accounts.Reconciliation statement:Submit a certified reconciliation statement in Form GSTR-9C,reconciling the declare

126、d supplies with the audited annual financial statement.Other prescribed particulars:Include any other particulars as prescribed by the GST law.For the reconciliation statement,it is advisable for GST registered entities to maintain a copy of their accounts as proof to demonstrate the correctness of

127、various aspects,including production of goods,stock of goods,input tax credit availed,and output tax payable and paid.General GST auditThe general GST audit pertains to an overall assessment of a businesss transactions.It is TurnoverGSTR 9:Annual return to be filed yearly by taxpayers registered und

128、er GSTGSTR 9C:Certified copy of the audited annual accounts and a reconciliation statement Up to INR 20 millionOptionalNot applicableIRN 20 million-INR 50 millionMandatoryOptionalAbove INR 50 millionMandatoryMandatory(can be filed on the GST portal through seft-certification,no professional required

129、)IndIa BrIefIng Issue 54 August 202317conducted by the commissioner or any other authorized officer in accordance with the GST law.The audit period,frequency,and methodology are prescribed under the GST law.The audit can take place at the registered persons place of business or at the office of the

130、commissioner or authorized officer.The timeframe for conducting the audit is typically three months.The registered taxpayer receives an advance notice at least 15 days prior to the audits commencement,and the audit must be completed within three months from that date.In special cases,the authorized

131、officer can extend the audit completion period by up to six months.During the GST audit,the authorized officer may require the registered person to:Provide facilities:Offer necessary facilities to verify books of accounts and other required documents.Furnish information:Provide the required informat

132、ion and offer assistance to ensure timely completion of the audit.Special GST auditA special GST audit is conducted at the behest of a GST Officer and carried out by a Chartered Accountant(CA)or Cost and Management Accountant(CMA).Such an audit is ordered when the GST Officer suspects that the taxpa

133、yer has incorrectly declared taxable values or inappropriately utilized input tax credit.The disparities that may trigger a special audit include incomplete audits,discrepancies in liability to evade tax,and incorrect revenue declarations.The GST Officer initiates a special audit by issuing Form GST

134、 ADT-03,and the taxpayer must get their accounts audited either before or after the commencement of any scrutiny,enquiry,or investigation.The appointed CA or Cost and Management Accountant(CMA)performs the audit,and the taxpayer is expected to cooperate with the auditor throughout the audit process.

135、Upon completion of the special audit,the CA or CMA submits the audit findings in Form ADT-04.The special audit must be concluded within 90 days.However,in exceptional cases,the Commissioner may grant an extension of another 90 days based on an application made by the CA or CMA.At the end of the spec

136、ial audit under GST,the taxpayer is given an opportunity to be heard concerning any material gathered during the special audit that may be used in any proceedings against them.This provision ensures that the taxpayers viewpoint is considered before any action is taken based on the audit findings.MAN

137、AGE COMPANY TAX AND COMPLIANCE ACROSS MULTIPLE JURISDICTIONSDezan Shira&Associates experienced team of tax accountants,lawyers,and ex-tax officials can help on a wide spectrum of tax service areas across all major industries.Consolidate and improve your Asia tax reporting and compliance with our com

138、prehensive services for structuring,planning and compliance,transfer pricing,and financial software localization.EXPLORE MORE IndIa BrIefIng Issue 54 August 202318Preparing Your Business for the GST Audit and Annual Return Filing ChecklistThe GST audit and annual return filing are essential complian

139、ce activities for businesses in India.Proper preparation can help streamline the process and ensure accurate reporting.Here are some steps to prepare for the GST audit and annual return filing:Organize financial records:Gather and organize all financial records,including sales and purchase invoices,

140、expense documents,input tax credit details,and other relevant documents.Maintaining proper records will facilitate a smooth audit process and simplify annual return filing.Reconcile books of accounts:Ensure that the books of accounts reconcile with the financial statements and GST returns filed duri

141、ng the year.Identify any discrepancies and rectify them before the audit.Verify input tax credit:Verify the accuracy of input tax credit claimed during the year.Ensure that all eligible input tax credit is properly accounted for and supported by valid documents.Review compliance with GST laws:Conduc

142、t a thorough review of your businesss compliance with GST laws and regulations.Identify any potential non-compliance issues and take corrective actions to avoid penalties.Perform internal audits:Conduct internal audits periodically to assess the accuracy of GST filings and identify areas that need i

143、mprovement.Address any discrepancies or errors discovered during the internal audit.Engage professional help:It is advisable to engage the services of a qualified Chartered Accountant or a GST consultant to guide you through the audit process and ensure compliance with GST regulations.Stay updated w

144、ith GST changes:Keep yourself updated with any changes in GST laws,rules,or procedures to ensure that your business adapts to the latest compliance requirements.Review GST annual return:Thoroughly review the details provided in the GST annual return before filing.Verify all figures and ensure that a

145、ll relevant information is accurately captured.Submit documentation timely:Ensure that all required documents and information are submitted to the auditor or tax authorities promptly to avoid any delays in the audit process.Seek clarifications:If you have any doubts or queries related to the GST aud

146、it or annual return filing,seek clarifications from a qualified professional or contact the relevant tax authorities.IndIa BrIefIng Issue 54 August 202319As we look ahead to the next five to 10 years,the audit space is undergoing significant changes,driven by three key factors.First,the evolving bus

147、iness landscape and changing client expectations are reshaping how companies operate.The increasing complexity of organizational structures and the rise of intangible assets,such as digital transactions,require auditors to adapt their methodologies to match these new realities.Secondly,auditors them

148、selves are redefining their roles to deliver more value and meaningful insights beyond traditional transactional reviews.They aim to provide comprehensive and relevant reports that go beyond mere financial data.However,one of the most significant drivers of change lies in the third aspectthe evolvin

149、g regulatory landscape.The Institute of Chartered Accountants in India(ICAI)and the National Financial Reporting Authority(NFRA)are actively focused on enhancing the quality of financial reporting and ensuring auditors deliver high-quality audit reports.Traditionally,audits have relied on manual ass

150、essments,consuming time and resources.Emerging technologies promise to revolutionize audits by overcoming limitations and enhancing efficiency.Indian audit regulations have also been amended to require audit trails to be enabled in business management software.Chapter 3To achieve robust audit proces

151、ses,regulators have been updating existing guidelines and introducing new standards.Compliance with auditing standards is crucial for building trust among users of financial statements and fostering a robust economy.This includes the introduction of the concept of the audit trail,which is now mandat

152、ory for certain types of organizations in India.What is an audit trail?An audit trail serves as a date and time-stamped record documenting the history and details of various events,transactions,and activities.Whether related to a transaction,work event,product development step,control execution,or f

153、inancial ledger entry,virtually any work activity or process can be captured in an audit trail,be it automated or manual.These trails take diverse forms in different fields,tailored to capture the unique focus areas of each domain.However,their core purpose remains consistent to track a sequence of

154、events and actions in chronological order.In todays rapidly Technology-Enabled Changes in the Audit Compliance LandscapeMelissa CyrillAuthor IndIa BrIefIng Issue 54 August 202320evolving IT and risk environment,organizations often rely on real-time or near real-time access to audit trails as part of

155、 their day-to-day operations.Most information technology systems also maintain comprehensive audit trails for user activity,and some systems are designed to consolidate inputs from various sources,creating extensive audit trail data.The utility of audit trails is diverse,as they provide time-stamped

156、 records with varying levels of detail.While some may capture simple errors and basic details,others can be quite complex,requiring technical expertise to interpret.Audit trails are an invaluable tool utilized for a range of purposes within organizations,including supporting audits,access controls,f

157、inancial statements,investigations,security,and other functions.Purpose for business organizationsThe purpose of an audit trail is multifaceted.It serves as a comprehensive and complete record,enabling businesses to track irregularities and identify process breakdowns when they occur.By maintaining

158、an airtight audit trail,companies can effectively detect internal fraud by monitoring user actions related to the companys data and information.Additionally,audit trail records are instrumental in identifying and addressing external data breach issues,which are becoming increasingly prevalent due to

159、 the rising threat of malware and ransomware crimes.From a compliance perspective,audit trails are a requirement for many organizations.Publicly-traded companies(listed entities),in particular,must have active audit trails to comply with SEBI Listing Agreement 2014(Clause 49),which necessitates an a

160、nnual audit by independent external auditors.An audit trail captures crucial details about transactions and processes,providing essential information for future reviews and root cause analysis.The uses of audit trails are diverse,with audits being one of the most common applications.Whether for fina

161、ncial,IT,HR,or operational audits,an audit log provides crucial evidence for inspection and validation of managements assertions.Audit trails are also employed to monitor access to sensitive data,investigate IT incidents,understand API transactions,track data deletions,and combat cybersecurity threa

162、ts.While audit trails offer substantial benefits,their maintenance can be costly and challenging,especially for key systems involved in audits for listed companies,where organizations are required to retain at least a years worth of audit logs.Taking a risk-based approach can help organizations prio

163、ritize which audit trails are most critical for their operations and compliance requirements.LIGHTWEIGHT CLIENT-ERP FOR ACCOUNTING SERVICES CUSTOMERSOur lightweight Client-ERP system helps customers realize optimized financial processes and avoid costly and complex setups.It provides them transparen

164、cy and control over the accounting data and processing that we help them manage.By using our ERP platform,clients can view accounting and expense dashboards,share data and information across teams,and submit and approve expenses and purchases anywhere anytime.For clients with inventory to manage,the

165、 supply chain management functionality can also be added.EXPLORE MORE IndIa BrIefIng Issue 54 August 202321Key sectors that rely on audit trails include financial and accounting,manufacturing and product design,healthcare and medical information,clinical research data,IT tracking and data,e-commerce

166、 sales records,among many others.The benefits of maintaining an audit trail are manifold.Accurate financial records supported by an audit trail build trust with investors and lenders,positioning the business for potential investments or loans.Increased efficiency,meeting compliance requirements,disa

167、ster recovery,and overall business integrity are among the other advantages.Compulsory audit trail and edit log for all companies(including Section 8 companies)in IndiaThe Ministry of Corporate Affairs had introduced the concept of audit trail through a notification dated March 24,2021,to come into

168、effect from FY 2023-24.ApplicabilityStarting April 1,2023,it is now mandatory for all companies in India,regardless of their size,including not-for-profit companies licensed under Section 8 of the Companies Act 2023(or Section 25 of the Indian Companies Act 1956),to incorporate a built-in mechanism

169、in their software that records an audit trail for every transaction.Thus,all companies under the Companies Act,including one-person-companies(OPC),small,dormant,and foreign companies,are required to maintain the audit trail in India.Additionally,an edit log must be created for each modification made

170、 in electronically maintained books of account,capturing the date of such changes.It is crucial to ensure that the audit trail always remains enabled and cannot be disabled.However,this requirement is not yet mandatory for public charitable trusts or societies registered under the Act of 1860.Simila

171、rly,limited liability partnership(LLP)firms are also currently exempt from this obligation.Using a third-party service providerTo ensure compliance,it is essential to check with your software service(SaaS)provider and verify whether the mentioned features are available in the software you are using.

172、Additionally,if you rely Business Management Software for SMEsTallyPrime is an example of a comprehensive business management software designed for small and medium-sized(SME)businesses.With TallyPrime,the SME firm can efficiently handle various aspects of their business,including accounting,invento

173、ry management,banking,taxation,payroll,and more.By streamlining these processes,TallyPrime simplifies complexities,allowing the enterprise to focused on business growth and development.The Audit trail and Edit log feature is available in Tally Prime but not in Tally ERP9.If you are using Tally Prime

174、,please make sure to enable this feature.For users of Tally ERP9,you may reach out to your Tally service provider to inquire about the possibility of obtaining new or additional software to access these features.IndIa BrIefIng Issue 54 August 202322on third-party service providers for any services o

175、ffered to your company,have a discussion with them to determine the applicability of the Audit Trail functionality in their software.Furthermore,engage in discussions with your auditors regarding these requirements or any other specific needs that will aid in achieving due compliance with this new m

176、andate.Collaborating with all relevant stakeholders will help ensure a seamless implementation of the Audit Trail concept and adherence to the regulatory guidelines.Penalty for non-complianceIf a company fails to meet the specified requirements,the managing director,the whole-time director in charge

177、 of finance,the Chief Financial Officer,or any other person charged by the management defined as per the provisions will be liable for punishment.The punishment entails a penalty ranging from INR 50,000 to maximum INR 500,000.Furthermore,auditors are obligated to disclose the non-compliance in their

178、 auditors report,making it transparent and accountable.SummaryTo achieve robust audit processes,regulators have been updating existing guidelines and introducing new standards.In this dynamic environment,businesses and auditors alike must embrace these changes to stay ahead and foster a transparent

179、and resilient economy.Tax,Accounting,and Audit in India 2023-24“Tax,Accounting,and Audit in India 2023-24”serves as a comprehensive guide and will equip businesses and foreign investors with the necessary knowledge and insights to effectively navigate Indias tax landscape.The guide covers a wide ran

180、ge of topics,including the rules triggering an entitys tax liability in India,reporting obligations and their timeframe,and the scope of tax regulations.Created in June 2023,this guide incorporates the most up-to-date information available at the time.to multinationals investing in emerging Asia.REA

181、D MORERELATED READING IndIa BrIefIng Issue 54 August 202323Emerging Technologies Driving Audit Innovation Artificial intelligenceAI-based systems and machine learning capabilities are set to revolutionize audit processes,bringing greater efficiency and precision.Here are some ways these technologies

182、 will transform audits:Obsolete Statistical Sampling:AI and machine learning systems can scan and review entire sets of documents,eliminating the need for statistical sampling.Automated Verification of Evidence:Machine learning capabilities can aggregate data from various monitoring systems,serving

183、as evidence of task performance.It can also log observations and issues based on anomalies in the data.Proactive Control Verification:AI-based systems can use automated measurement to predict expected outcomes and verify actual values against predictions.This proactive approach to control verificati

184、on reduces the need for manual intervention.Expanded Use of Data Points as Evidence:Machine learning and AI systems can extract large amounts of data from diverse sources like text,images,and voice recordings.Auditors are no longer limited to the evidence provided by auditees.Continuous Auditing Bec

185、omes Reality:AI-based continuous control monitoring systems can examine complete sets of records and identify control violations.The system can prioritize risks based on incoming data and turn it into actionable information.Self-Improving Algorithms:Algorithms in deep learning allow continuous contr

186、ol monitoring systems to reconfigure themselves based on previous results,optimizing control design with minimal human intervention.Blockchain A transformative technology across various industries,blockchains are designed to resist data modification,functioning as open,distributed ledgers for effici

187、ent and verifiable transaction recording.Auditors can use publicly available blockchain ledgers to verify transactions,reducing the need for bank statements or third-party confirmations,and increasing audit cost efficiencies.Yet while blockchain technology is inherently secure,it relies on human cod

188、ing for integration and interfacing,presenting risks.To comply with International Standards on Auditing(ISAs),auditors must comprehend the IT-related risks to an entitys financial statements and how the entity addresses them with IT controls.With the increasing adoption of blockchain,auditors would

189、need to elevate their assurance services to meet the demands of agile business environments and upcoming digital transformations.Automation Enhanced automation has played a crucial role in developing Software as a Service(SaaS)solutions,leading to improved audit efficiency.The effectiveness of audit

190、 documentation solutions hinges on several key factors,including cost-effectiveness,reliability of output,user-friendliness,real-time updates,and seamless change management.An example is the solution provided by Wolters Kluwer that streamlines the audit documentation process and also facilitates rea

191、l-time documentation,aligning perfectly with the ISQCI requirements.With Wolters Kluwers solution,organizations can enjoy the benefits of efficient and up-to-date audit documentation while meeting the necessary compliance standards.Drone technology Drones have found diverse applications in the field

192、 of auditing,particularly in conducting remote inventory observations for extensive setups.Additionally,the integration of inventory observations with drones and mobile applications has further optimized the process.What previously took 15-20 days to complete can now be accomplished in just half a d

193、ay,thanks to these technological advancements.This not only saves valuable time but also reduces costs,providing significant benefits to audit firms and auditors alike.Our Offices in IndiaAsiapedia is a collection of resources based on what we have learned about doing business in Asia.Delhi+91 0124

194、Unit No.1101-A,11th Floor,Emaar Capital Tower 2,MG Road,Near Guru-Dronacharya Metro StationGurugram-122002,Haryana,IndiaMumbai+91 22 6239 Unit No.405/A,B Wing,Kanakia Wall Street,Andheri Kurla Road,Andheri(East),Mumbai 400093,India Bengaluru+91 80 6185 Supreme Overseas Exports Building,1st and 2nd F

195、loor,Jayanagar,7th Block,KR Road,Bengaluru,Karnataka 560070,India Accounting|Audit and Financial Review|Business Advisory|Business IntelligenceCorporate Establishment and Governance|Due Diligence|HR and Payroll|Mergers and Acquisitions|Outbound Direct Investment|Risk Management|Tax|Technology Are yo

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