Statutory Audits (as per Companies Act)
A statutory audit is a legally required review of a company’s financial statements and records to ensure accuracy, transparency, and compliance with the provisions of the Companies Act, 2013 in India. As per the Act, every company, except for a one-person company (OPC) and small companies, must have its financial statements audited annually by a qualified chartered accountant. The statutory auditor is appointed under Section 139 and is responsible for verifying the financial position of the company by examining its books of accounts, transactions, and supporting documents. The audit ensures that the company’s financial statements present a true and fair view of its financial health. Additionally, the auditor must comply with the auditing standards issued by the Institute of Chartered Accountants of India (ICAI) and report any irregularities, fraud, or non-compliance to shareholders and regulatory authorities. The audit report is an essential document for stakeholders, as it enhances credibility, investor confidence, and regulatory compliance. Failure to conduct a statutory audit may result in penalties and legal consequences for the company and its directors under the Companies Act..
Internal Audits
Internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. Unlike statutory audits, which are legally mandated, internal audits are conducted voluntarily by companies to evaluate risk management, internal controls, and operational efficiency. It helps organizations identify weaknesses in processes, prevent fraud, and ensure compliance with internal policies and external regulations. Internal auditors assess financial and operational activities, review adherence to company policies, and suggest improvements for better governance. In India, Section 138 of the Companies Act, 2013 mandates internal audits for certain classes of companies, such as listed companies, public companies with specified turnover and borrowings, and other prescribed entities. Internal auditors may be chartered accountants (CAs), cost accountants, or other qualified professionals appointed by the management. Their findings are reported to senior executives or the audit committee, enabling timely corrective actions. This proactive approach enhances corporate governance, operational effectiveness, and risk mitigation. By continuously monitoring internal controls, internal audits help businesses achieve their strategic goals while ensuring transparency, accountability, and efficiency..
Tax Audits (as per Income Tax Act)
A tax audit, as per Section 44AB of the Income Tax Act, 1961, is a mandatory examination of a taxpayer’s financial records to ensure compliance with tax laws and accurate reporting of income, deductions, and tax liabilities. It applies to businesses and professionals whose gross turnover, sales, or receipts exceed the prescribed threshold in a financial year. As of recent amendments, the threshold limit is ₹1 crore for businesses, but it increases to ₹10 crore if at least 95% of transactions are done digitally. For professionals, the limit is ₹50 lakh. The audit is conducted by a chartered accountant (CA), who verifies financial records and submits a tax audit report (Form 3CA/3CB and Form 3CD) to the Income Tax Department. The report highlights discrepancies, tax evasion risks, and non-compliance with tax laws. A tax audit ensures accuracy in tax calculations, prevents tax evasion, and simplifies tax assessments for authorities. Failure to conduct a tax audit, when applicable, may result in penalties under Section 271B, which can be 0.5% of turnover or receipts, up to ₹1.5 lakh. Tax audits help maintain financial discipline, transparency, and compliance with the Income Tax Act.
GST Audits
A GST audit is a detailed examination of records, returns, and documents maintained by a registered taxpayer to ensure compliance with the Goods and Services Tax (GST) laws. As per Section 35(5) and Section 65 of the CGST Act, 2017, GST audits are conducted to verify the accuracy of tax payments, input tax credit claims, and adherence to GST regulations. A GST audit can be classified into three types:
Turnover-Based Audit – Earlier, businesses with an annual turnover exceeding ₹2 crore were required to get their accounts audited by a chartered accountant (CA) or cost accountant and submit a reconciliation statement (GSTR-9C). However, this requirement was removed in the Finance Act, 2021, making self-certification mandatory instead.
Departmental Audit – Conducted by tax authorities under Section 65, where GST officers inspect the taxpayer’s records.
Special Audit – Ordered under Section 66 by the GST officer if discrepancies are found, and it is conducted by a CA or cost accountant.
A GST audit ensures transparency, prevents tax evasion, and helps maintain accurate tax records. Non-compliance can lead to penalties, interest, or legal consequences under GST laws.
Forensic Audits
A forensic audit is a specialized examination of a company’s financial records to detect fraud, financial misconduct, embezzlement, or regulatory violations. Unlike regular audits, forensic audits focus on investigating financial irregularities, tracing assets, and gathering evidence for legal proceedings. These audits are conducted by forensic auditors, who are often chartered accountants (CAs) with expertise in forensic accounting.
Forensic audits may be initiated due to suspected fraud, whistleblower complaints, corporate disputes, or regulatory inquiries. The process includes data analysis, reviewing financial transactions, interviewing employees, and identifying suspicious activities such as money laundering, asset misappropriation, or financial statement fraud. The findings of a forensic audit can be used in court cases, arbitration, or regulatory investigations conducted by bodies like the Serious Fraud Investigation Office (SFIO), Enforcement Directorate (ED), or the Securities and Exchange Board of India (SEBI).
Forensic audits play a crucial role in strengthening corporate governance, ensuring legal compliance, and protecting stakeholder interests. Organizations use them to prevent financial crimes, enhance transparency, and build investor confidence. If fraud is detected, legal actions, including penalties, prosecution, or regulatory sanctions, may follow.
Stock & Inventory Audits
A Stock & Inventory Audit is a systematic examination of a company’s inventory records, stock levels, and valuation to ensure accuracy and compliance with accounting standards. This audit helps businesses prevent theft, mismanagement, and discrepancies in stock records while ensuring efficient inventory management. It is particularly important for companies engaged in manufacturing, retail, wholesale, and logistics, where inventory forms a major part of their assets.
The audit involves physical verification of stock, reconciliation with accounting records, checking for obsolete or damaged goods, and reviewing stock movement. Auditors also evaluate internal controls, storage conditions, and supply chain efficiency. Regular stock audits help in detecting fraud, avoiding stock shortages or excesses, and maintaining optimal working capital levels.
In India, Section 148 of the Companies Act, 2013, mandates stock audits for certain companies, and tax authorities may also require inventory audits under GST and Income Tax laws. Businesses conduct periodic, perpetual, or year-end stock audits based on their needs. Proper inventory audits improve financial reporting accuracy, operational efficiency, and business profitability by ensuring stock levels align with actual sales and production requirements.
Compliance Audits
A compliance audit is an independent review of an organization’s policies, procedures, and financial records to ensure adherence to legal, regulatory, and internal compliance requirements. These audits help businesses verify whether they are following applicable laws, industry regulations, corporate policies, and contractual obligations. Compliance audits are conducted in various areas, including tax laws, labor laws, environmental regulations, data protection laws (such as GDPR), and financial reporting standards.
The audit process includes examining records, assessing internal controls, identifying gaps in compliance, and recommending corrective actions. Regulatory bodies like the Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), and Ministry of Corporate Affairs (MCA) often mandate compliance audits for financial institutions, listed companies, and large corporations. Non-compliance can lead to penalties, reputational damage, and legal consequences.
Regular compliance audits help organizations mitigate risks, improve governance, enhance operational efficiency, and build stakeholder trust. By ensuring adherence to regulatory frameworks, businesses can avoid financial penalties, safeguard their reputation, and maintain smooth operations in a legally compliant manner.