Almost every company must have to deal with different audits all through the financial year. However, most of the entrepreneurs get confused as they are not aware of the reason behind different audits.
As all the financial transactions of the company come under the tax, there should be an audit for everything. Apart from the GST audit, two other essential parts are Statutory Audit and Tax Audit.
Before knowing the differences between these two types of audit, you must know about them first.
- Statutory Audit: This is a compulsory audit for every company. Whether the entity is registered under the Companies Act as Public Limited or Private Limited company, it is important that the books of accounts should be audited every year. The nature of the audit is not conditional as it depends on the type of entity. For that reason, if your entity is a company, you need to do this audit by the Statutory Auditor in India.
- Tax Audit: This conditional audit comes under the Income Tax Regulation. In case, the turn over of the enterprise is more than 1 crore and the company spends more than 50 lacs for professional value, then you have to hire the Tax Auditor in India to execute the audit.
If the enterprise has opted for the Presumptive Taxation scheme, then you will get an exemption from it. However, this rule is not meant for companies that are enjoying turnover of Rs. 1 Crore in a financial year.
What are the differences between the Statutory Audit and Tax Audit?
- When the Statutory Audit comes under the Companies Act, 2013, the tax audit comes under the Income Tax Act, 1956.
- The previous one is applicable only for companies and the later audit is for all entities like company, enterprise, etc.
- There is no condition for Statutory audit but the turnover of the entity must be 1 crore in a financial year for a tax audit.
- The Statutory audit checks all the disclosures, as well as compliances, are made as per the Companies Act. However, the Tax Audit is to check the income, expenses and related transactions to know whether all the taxes are calculated fairly or not and the authenticity of the disclosure.
- The report of the Statutory Audit has to submit to the Stake Holder and for the tax audit, the auditor will submit them to Income Tax.
- Importance, Advantage, & Disadvantage of Statutory Audit: This audit is a great way to make sure the credibility, fairness, and transparency of the accounting reports. The external Statutory Auditor in India carries out the whole process to express his outlook on the final accounts for justification.
Through this, the management gets assured that their statutory duties are performed perfectly. The expenditure of this audit is quite high and you can consider it as a disadvantage. Some employees complain of disruption of their work during the process.
Importance, Advantage, & Disadvantage of Tax Audit: The main advantage of the Tax audit is that you can analyze the taxpayers’ habit. It is a great way to save the tax of the company in the long run. Sometimes it brings complications within the management in regards to power-sharing.