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Guide on Tax Audit — Explained
Audit is the most popular word for most of the business. The word Audit is originated from Latin word "audire" which means to hear.
Authored by COE Team, EZTax
Last Reviewed: Jan 24th 2025
This document covers
1. Background
Audit is an independent examination of financial information or operations of business. The purpose of Audit is to provide assurance to the users of the information about the accuracy, fairness, and reliability of an organization's financial information, operations, or compliance with applicable laws. Audit serves the following
- Assurance about Financial Statements
- Detection and Prevention of Errors and Frauds
- Compliance with laws and regulations
- Strengthen Internal controls
- Transparency and Accountability
- Support in decision making
2. Various types of Audits
There are various types of audits based on the purpose, scope etc. The different types of Audits are as follows
- Tax Audit
- Statutory Audit
- Internal Audit
- Forensic Audit
- Information System Audit
- Cost Audit
- Environmental Audit
| Particulars | Tax Audit | StatutoryAudit | Internal Audit | Forensic Audit | Information System Audit | Cost Audit | Environmental Audit |
|---|---|---|---|---|---|---|---|
| Purpose (Why) | To ensure the compliance of various provisions of Income Tax law and other requirements under Income Tax Act, 1961 | To provide an independent opinion on the fairness and accuracy of the financial statements and ensure the compliance with relevant laws, rules, regulations | To assessinternal controls and process and detect and prevent errors and frauds | To investigate financial irregularities and fraud | To assess the reliability of IT systems, Cyber security and data integrity | To assess the compliance with cost accounting standards and verifies cost efficiency in operations | To assess compliance with environmental laws |
| Covered By | Income Tax Act, 1961 (Section44AB) | Companies Act, 2013 , Banking Regulation Act, 1949, SEBI regulations, etc. | Companies Act, 2013 (Sectio n 138 manda tes internal audit for certain compa nies). | Governed by forensic principles, applicable criminal laws, and regulatory frameworks (e.g., Prevention of Money Laundering Act, 2002). | IT Act, 2000 (India), Data Protection Laws (e.g., GDPR, PDPA); ISO/IEC standards. | Companies Act, 2013, Cost AuditRules, 2014. | Environment al Protection Act, 1986, State Pollution Control Board regulations. |
| Who conducts | Chartered Accountants (CA) | Independent practicing Chartered Accountants | Internal Auditors (in house or outsourced) | Forensic experts or auditors with investigation skills. | IT auditors or specialists (CISA, DISA, ISA etc) | Cost Accountants (CMA) | Environmental Auditors (SAI) |
| When will be condu cted (Frequency) | Annually | Annually | Periodic intervals like quarterly or half yearly | No specified time limit. It will be conducted where there is a need for investigation | Periodic intervals or any system changes | Annually | Annually or as mandated |
| Whom to report (reporting authority) | IncomeTax | Shareholders, Board of directors and Regulators like ROC | Management | Legal Authorities, Management and Board of Directors | Management, Board of Directors | ROC and Board of directors | Environmental Protection Agency (EPA) or relevant regulatory bodies |