Role Of Auditor

Auditing????? A big question for corporate who just taking this as a obligation. Audit is not only a statutory obligation but what role an auditor plays while doing auditing is important to understand. Auditing means to evaluate and to review the effectiveness of a company's internal controls/policies and its operational programmes. Business scenario is to achieve objectives not just by flying on profitability but to maintain an effective system of internal controls.

Now again a big question that zoom in the picture is who will do better job of auditing who can be responsible, accountable to give reliable financial reporting of operations, can prevent fraud and misappropriation of assets. Many certified audit firms in India do this job in well manner and contribute to a company's audit system. Both internal and independent auditors plays a vital role in feeding company’s growth by showing true and fair financial picture of company.

Certified Internal Auditors in India always put an effort in structuring an effective audit system. This audit system facilitates corporate to detect irregular transactions, helps in supervision and monitoring and to promote operational productivity. Audit system by Internal auditor helps in maintaining proper internal control through which organization can pursue and attain corporate objectives. Certified Internal Auditors in India also helps to assess the risk of material misstatement in a company's financial reports. Regular check on company’s operations and putting internal control checks can detect different types of fraud and other accounting irregularities. In India Certified Audit Firms, helps in designing the internal controls so that any material irregularities can easily detected in any circumstances. Without this system of internal controls, it will be difficult for a company to create reliable financial reports for internal or external purposes. Thus, to determine or to allocate resources and to know which segment and product line of the corporate is making profit or losses, it very important to have an effective and efficient Internal Control System.

Additionally, a good internal audit control check also has ability to manage affairs of the business by telling the exact status of its assets and liabilities. Accordingly, an effective audit control by certified internal auditor of certified audit firm in India always helps in preventing debilitating misstatements in a company's records and reports. Strong and a well balance audit systems can reduce various types of risk like risk of misstatements in financial statements, misappropriation of assets, information manipulation and other related type of risks.

A Certified Auditor’s responsibility is not only to cross check all the material items but it also includes evaluate regulatory compliance, maintaining two way communication between audit team and management, providing recommendations for controlling deficiencies in organization operations, providing assurance for good corporate governance and help staff in understanding the risk associated with non compliance.

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Internal Audit And Management Audit

Audit, a specific term, is defined as a planned and documented activity or an official investigation and evaluation of the accounts of an organization to determine the adequacy and compliance with pre-established procedures or the documents, which are applicable, and the effectiveness of implementation. It is a vital part of accounting. It is thorough examination and evaluation of an organization’s financial statements without any prejudice. Among the different types of Audit that we have come to know, Management Audit Internal Audit Services also has profuse amount of importance in the world of audit.

Internal Audit:

Internal Audit which is also known as a first-party audit, is the auditing by organization of its own systems, i.e. self assessment which is ultimately used to ascertain the strengths and weakness against requirements, and an organizations own standards. Internal Audit is an activity, which is independent, objective assurance and consulting, designed in a way that, at an end it adds value and improve an organization’s operations. By bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance process, it helps an organization to achieve its objectives. There may be some potential threats to the organization’s health and profitability. Thus internal audit is designed to review what a company is doing in order to identify those threats, and to make suggestions to reduce the risk that are directly or indirectly associated with those threats in order to minimize costs. Professionals called Internal Auditors, who are employed by organizations, perform Internal Auditing Services.

Some of the major roles and responsibilities of Internal Audit functions are:

  • Draws conclusions from examinations and provides reasonable assurance or certainty that management of risk, control and governance systems are functioning, as it was intended and will enable to meet the goals and objectives of an organization.
  • Reports internal control deficiencies and risk management issues identified directly to the audit committee and furnish advice for ameliorating the organization’s operations in terms of both efficient and effective performance.
  • Evaluates information security and related risk exposures.
  • With consultation of legal counsel, evaluates regulatory compliance.
  • Evaluates preparedness of the organizations in case of business interruption.
  • Establishes accessible communication with management and the audit committee.
  • Participates in continuous education and staff development
  • Provide aid to the company’s anti fraud programs.

Management Audit:

Changes in the business environment are inevitable. Some changes are major and these are the causes for which Management audit is necessitated in the business. The utter inspection and evaluation of competencies of a company’s management in order to evaluate their effectiveness, especially regarding the strategic objectives and policies of a business is what we know as Management audit. The primary objective for the management audit consultants is to analyze the management team in relation to their competition. Thus, we can conclude that it is not necessarily done to appraise individual executive performance. It is a systematically done examination of the decisions and actions of the management to analyze the performance. Some of the managerial aspects like organizational objective, policies, procedures, structure, control and system, are reviewed by the Management Audit Consultants. It is basically done to check the efficiency of performance of the management over the activities of the company. It is generally conducted by the employee of the company or by the independent consultant and concentrated on the crucial evaluation of management as a team rather than appraisal of individual.

Some of the major roles and responsibilities of management audit are:

  • Identifying the objectives of an organization if such are not set up.
  • Allocating the overall objectives of an organization into small fragments.
  • Reviewing the whole structure of an organization and asset of an organization deciding whether the target can be achieved or not.
  • Examining all the scope of work and liability centers.
  • Helping the members of management to make effective discharge of duties
  • Helping in the improvement of profits.

By - Uttam Neupane


Basics on Specified Domestic Transactions (Transfer Pricing)

Finance Act 2012 had come with many number of amendments in the provisions of Transfer Pricing Regulation but most importantly the amendment extended the provisions of International Transfer Pricing now also to include Domestic Transactions specifically entered by related parties or undertakings with other undertakings of same unit for the purposes specified under section 40A, 10AA and Chapter VI-A. Clause 35 of the Finance Act 2012 inserted Section 92BA in the Income Tax Act, which defines Specified Domestic Transactions for the purposes covered by Transfer Pricing Regulations. Section 92BA states meaning of Specified Domestic Transactions as under:

“For the purposes of this section and sections 92, 92C, 92D and 92E, “specified domestic transaction” in case of an assessee means any of the following transactions, not being an international transaction, namely:—

  • any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A;
  • any transaction referred to in section 80A;
  • any transfer of goods or services referred to in sub-section (8) of section 80-IA;
  • any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA;
  • any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable; or
  • any other transaction as may be prescribed,
  • And where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of ‘5 crore.’

The safe harbour rule is also put in the section i.e. minimum threshold of 5 crore INR i.e. for the applicability of section 92BA, all the aggregate value of all the above specified transactions should exceeds the threshold limit of ` 5 crore. And if the threshold limit is exceed, an assessee will be required to comply with Transfer Pricing Regulation or requirements with reference to all the transactions regardless of the fact that that the value of transactions under one of the limbs may be very small or nominal. The above said provision on Transfer Pricing applies from AY 13-14.


Compliance Requirements will be same for Specified Domestic Transactions as they applied on International Transfer Pricing Transactions like Chartered Accountant Report (Transfer Pricing Certification), TP Documentations etc.  But with amendments in Section 40A(2)(a) and 80A(6), taxpayers need to evaluate, identify and list out the transactions which qualify as SDTs and should included in transfer pricing documentation and accountant’s report. Transfer Pricing Certification in Form No. 3CEB is required to be furnished by a chartered accountant including value of SDT, list of related parties and method used to determine ALP. All the detailed documentation should be maintained and submitted by 30th November of the relevant assessment year. Non-compliance or improper compliance will lead to heavy penalties. Like,

• Failure to maintain documents; or Failure to report a transaction in the accountant’s report; or Maintaining or furnishing incorrect information or documents - Penalty of 2% of the value of transaction.

• Failure to furnish documents - Penalty of 2%of the value of transaction.

• Failure to furnish Form 3CEB by the due date – Penalty of 100,000 INR.

• In case of a transfer pricing adjustment, in absence of good faith and due diligence by the taxpayer in applying the provisions and maintaining adequate documentation – Penalty of 100% - 300% of tax on the adjusted amount.

By -  CA Balram Bansal


Management Verdict for Small Scale Entrepreneurs

Shifting from jobs for their own business start-ups has a large trend seeing in the last decade. Diverse business practices with tremendous business skills making the market competitive and changing the meanings of many business terms. As a Chartered Accountant, I have seen many professional candidates having different business ideas that they have implemented and choosing routes for doing business that are very different from the traditional Course Practices. New emerging skills in the youth are changing the future vision of business policies. Changes in terms of transparency, ‘Er-Ee’ relationship, Income Distribution and most importantly Working Structures are making new benchmarks for the markets. Now it is a challenge for new and youth entrepreneurs on how to learn these changes without affecting the operational activities.

Previously the citrus fruits (Top Executive) rarely shared their knowledge with its people. However, what today’s management verdict says – “Make all your team like you” as no group can be successful until they cut vacuum to share their experience and knowledge. Keeping all teammates updated with latest trends not only increases the effectiveness of their activities but also enhance the communication flow to the next level. Some days ago, one of my client, was just discussing some of his business vision. He mentioned me many points on how their group is growing. They just put some pauses on their long vision and on long term plans to make clear and purpose vision. He mentioned fear not to experiment is just paralyzing the future success. Experimenting is just like an innovation. Every group needs to understand the next management verdict that failure on experiments is taking them a step close to their success.

Many recent studies also reviewed a tremendous change in work attitudes with the change or shifting of generation. Studies revealed many facts that this generation (NewGen) want to participate in corporate discussions with their senior executives, want equal status in the work. Our work predecessors worked to live while NewGen works to experiment. And for this my mantra is “work with change” as the future is NewGen and will take more than 75% of leader positions in next 10 years.

Many other Management verdicts are also need to learn to survive and to take your stand in this era. I always believe to set high benchmarks for your market players, your group need to work on excellence that only comes from the VIP MADE things.

  • V   –    purpose Vision
  • I     -     the spider Interaction (Two Way Communication)
  • P    –    Passion
  • M   -     leverage Marketing tactics
  • A   –    cut the self-limit attitude
  • D   –    Dream
  • E    -     Enthusiasm



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