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Everything you need to know about Tax Audit Checklist for AY 2022-23

Staff/Articles feel overwhelmed and do not know where to start regarding tax audits. The primary step is understanding the basics of a tax audit checklist and what it entails. A tax audit procedure examines your financial records by the Chartered Accountants Firm to ensure that you pay the correct income tax amount. The tax audit is conducted through a physical inspection of your documents electronically.


No one enjoys being audited or Scrutinised by the Income Tax Department (ITD), but it can be less daunting if you understand what a tax audit report is and what to expect. A tax audit procedure examines your financial records by the Chartered Accountant (CA) to ensure that you pay the correct income tax amount under section 44ab of the income tax act. The audit may be conducted through a physical inspection of your documents or electronically.


You can download the Tax Audit Procedure PDF from below or you can contact us to use eProcessify checklist template that will help in automation, task scheduling and much more. You can see the checklist template here.

Tax-Audit-SOP
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One of the most crucial and smart things you can do to prepare for a tax audit is to keep accurate records. It means keeping track of all your income and expenses and any other financial information relevant to your taxes. It is also good to keep a copy of your tax return from the previous year and any other relevant documents.


The tax audit procedure can be daunting, but it is essential to remember that the CA is only looking to ensure that you comply with the law and pay the correct amount of tax as per the income tax act 1961.


Tax Audit Applicability


Tax Audit is applicable u/s.44AB of Income Tax Act 1961 if any taxpayers turnover exceeds Rs. One crore in a financial year. However, if cash receipts do not exceed 5% of total turnover or cash payment does not exceed 5% of total revenues, the threshold limit for a tax audit is ten crores.


Suppose persons carry on any business or profession eligible for presumptive taxation u/s. 44AE, 44AD, 44ADA, 44BB, 44BBB, and claims profit below the rate prescribed in said sections, then Taxpayers have to get the books of accounts audited if turnover is less than one crore as per the income tax act 1961.


Suppose persons carry on any business or profession eligible for presumptive taxation u/s—44AE, 44AD, 44ADA, 44BB, 44BBB claims profit below the rate prescribed in said sections. If turnover is more than one crore, then Tax Audit is applicable if cash receipt exceeds 5% of total turnover or cash payment exceeds 5% of total revenues. As per section 44ab of the income tax act.

Less than one crore

Between 1-2 crores

Between 2-10 crores

Greater than ten crores

Tax Audit applicable If persons carry on any business or profession which are eligible for presumptive taxation u/s. 44AE, 44AD, 44ADA, 44BB, 44BBB and claims profit below the rate prescribe in said sections

Tax Audit applicable If persons carry on any business or profession which are eligible for presumptive taxation u/s. 44AE, 44AD, 44ADA, 44BB, 44BBB , claims profit below the rate prescribe in said sections and cash receipts exceed 5% of total turnover or cash payment exceeds 5% of total payment

Tax Audit is applicable if cash receipts exceed 5% of total turnover or cash payment exceeds 5% of total payment

Tax Audit Applicable

Tax Audit Report Constitute


The income tax act 1961, claims that the Tax Audit Report consists of the following forms:


Form 3CA/Form 3CB: Form 3CA must be furnished by taxpayers whose accounts are already get audited under any other laws. For, e.g. Companies whose accounts get audited under the Companies Act 2013 or Limited Liability Partnership(LLP) whose accounts get audited under Limited Liability Partnership Act 2008


Form 3CB must be furnished by taxpayers whose accounts are not being audited under other laws.


Form3CD: Form 3CD must be furnished by every taxpayer who applies to Tax Audit as above. It has around 44 clauses. Auditors' applicability, information, and numbers need to be provided based on Books of Accounts and Information produced before them.


Tax Audit Due Date


According to the income tax act, the Tax Audit report requires to produce before 30th September of the subsequent year. For Eg. For FY 2021-22, the due date for filing the Tax Audit report is 30th September 2022.


For the FY 2020-21, the due date for filing Tax Audit Report is extended to 15th February 2021.


Tax Audit Penalty for non-filing or delay in filing


If the Taxpayer fails to produce the Tax Audit Report within due date, the liability for non-filing or delay in filing u/s.271B is minor of the following:

  • 0.5% of Total Sales, Turnover or Gross Receipt

  • Rs. 150000/-

However, a reasonable cause is produced, no penalty shall be levied.


How to Conduct Tax Audit


To conduct the Tax Audit, you need first to finalise the books of account of the client, vouch/check every expense claimed by the client and income earned by the client. The detailed checklist of Tax Audit in the table below. You can also download Tax Audit Procedure in excel sheet from here.

​Audit Engagement Letter

Receive required financial records

Records to be received are Last year Balance Sheet, Account Backup, Cash Vouchers, Bank Vouchers, Journal Vouchers, Purchase Bills and Sales Bills

​Checking of Opening Balance

Check the opening balances as per last year Balance Sheet. If the last year balance sheet is unaudited, discloase the same in Form 3CB and Financials Statement

Cash Vouching

​Verification

  • Is vouching done on test basis, mention the percentage of voucher and basis of sample selected

  • Check cash withdrawn from Bank entered on same day in cash book

  • All vouchers entered under correct account head

  • Check any cash payment made for expenses/fixed assets exceeding Rs.10000/- and for Transport charges Rs.35000/-

  • Check no personal expenses are debited

  • Check whether all the vouchers are properly authorised

  • Revenue Stamp of Re.1 is affixed on payment above Rs.5000/-

  • Whether all the vouchers are supported by third party invoice/receipt

  • In case if voucher is supported by management voucher, obtain the reson for same and same needs to be disclosed in Form 3CD and Financials

  • No Prior period expenses were accounted for. If yes, than same needs to be reported in Clause 27 of Form 3CD

Bank Vouching

Verification

  • Is vouching done on test basis, mention the percentage of voucher and basis of sample selected

  • All vouchers entered under correct account head

  • Revenue Stamp of Re.1 is affixed on payment above Rs.5000/-

  • Check no personal expenses are debited

  • Whether all the vouchers are supported by third party invoice/receipt

  • Check whether all the vouchers are properly authorised

  • No Prior period expenses were accounted for. If yes, than same needs to be reported in Clause 27 of Form 3CD

Purchases

Verification

  • Check the Purchase Register with GST Returns. In case of differences, reconcile the same.

  • Obtain ratewise details of Purchases

  • Check whether any purchases booked directly thorugh bank payment entry.

  • Prepare reconciliation of Purchases with GSTR2A. Inform to Suppliers/Vendors whose GST credit is not reflecting

  • Check whether TDS is deducted wherever applicable

  • Verify the Credit note where GST is not reversed

  • In case of Credit note other than Financial credit note(cash discount, interest,etc), check whether GST is reversed in such cases

  • No Indirect Expenses such as Printing Stationary, Office Expenses,etc debited to Purchases

  • Check whether GST is paid on Import of Services on RCM basis

  • Check Import Purchases. The same needs to be entered at rate mentioned on Shipping Bill. Check whether AS-11 is followed

  • Check whether IGST credit is taken on Import which was paid at the time of clearing from Customs. The same is mentioned on Shipping Bill/Bill of Entry

  • Check if there is any purchases from relatives. If yes same needs to be reported in Clause 23 of Form 3CD

Documents to be taken and verified

  • Reconciliation of GST returns and Purchase Register, Ratewise Purchases

Sales

Verification

  • Is vouching done on test basis, mention the percentage of voucher and basis of sample selected.

  • All vouchers entered under correct account head.

  • Whether GST/VAT/Cenvat is properly accounted.

  • Sales Invoice should be supported by Delivery Challan/Lorry Receipt, Purchase Order(PO) and eway bill if bill amount exceeds Rs.100000/-(within state) and Rs.50000/-(out of state)

  • In case of Export, verify custom documents such as Bill of Entry (Shipping Bill), Commercial Invoice, Purchase Order,etc

  • Check whether all the vouchers are properly authorised

  • Check whether all the Sales Bill are in serial number. In case of cancel bill, whether the original bill is kept on record.

Journal Voucher

Verification

  • Is vouching done on test basis, mention the percentage of voucher and basis of sample selected

  • All vouchers entered under correct account head

  • Whether GST/VAT/Cenvat is properly accounted

  • Check the Salary Entries with Salary Sheet.Check whether the dedcutions are properly accounted for

  • Check whether other monthly expenses such as Telephone, Internet, Electricity, etc are properly accounted for

Ledger Scrutiny Balance Sheet

Capital Account

Verification

  • Check MOA for Authorised Capital. If it is raised during the year, check necessary ROC filings.

  • Read the minutes of meetings(AGM/EGM/Board). Check the return of allotment filed with ROC.

  • If it is Foreign Direct Investment(FDI), check whether RBI guidelines has been followed.

  • If shares are issued against share option check ESOP agreement and related ESOP regulation.

Documents to be taken and verified

  • ROC filing for raising of Authorised Capital, Allotment of Shares

  • ESOP Agreement

  • In case of FDI, filings with RBI

Capital-Account-Reporting
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​Reserves and Surplus

Verification

  • Whether reserves and surplus classified into

  • Capital Reserves

  • Capital Redemption Reserves

  • Debenture Redemption Reserves

  • Revaluation Reserves

  • Share Option Outstanding Account

  • Surplus showing allocation and appropriation such as dividend,bonus, transfer to/from reserves

  • Whether addition and deletion since last balance sheet are shown under each head

  • Word "Fund" should be used where specific investments were made against such reserves

  • Check whether Dividend is distributed out of Free Reserves and Profit & Loss Account

  • Whether any special reserves is require to be created under any law is to be checked

  • In case reserves has been created for specific purpose, than same has been utilised for such purpose only.

Documents to be taken and verified

  • Dividend Payment Vouchers, Reserves Utilisation Documents, Investments to be checked where fund is created​

Reserves-and-Surplus
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Share Application Money

Verification

  • Check whether Shares has been alloted within 60 days from the date of receipt

  • If not alloted within 60 days, check whether application mmoney is refunded within 15 days

  • If not refunded within 15 days than interest is require to be paid @12% and the same will be termed as deposits as per provisons of companies act

Long term Borrowings

Verification


Long term borrowings needs to be classified as follows:-

  1. Bonds/Debentures

  2. Term Loans from Bank or others

  3. Deferred Payment Liabilities

  4. Deposits

  5. Loans and Advances from related party

  6. Long term maturities of finance lease obligation

  7. Other Loans and Advances

  • Also disclosed whether the loans are secured or unsecured. Also specify the nautre of security offered. Also specify whether loan is guaranted by directors or any other person

  • Bonds/debentures (along with the rate of interest and particulars of redemption or conversion, as the case may be) shall be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be. Where bonds/debentures are redeemable by installments, the date of maturity for this purpose must be reckoned as the date on which the first installment becomes due.

  • Dislcose, in case of default, period and amount of continuing default is to be shown seprately

  • Whether interest are entered in accounting systems at agreed rate. Whether TDS is deducted and deposited on same.

  • Take balance confirmation from all banks and parties

  • In case of loan from Directors, take the declaration that loan has been given to company out of its own fund.

  • In case of Loan taken from person other than Bank and Financial Institutions, the same needs to be reported under Clause 31 of Form 3CD

Documents to be taken and verified

  • Bank Statement as on date of Balance Sheet, Balance Confirmation letter and declaration from director, PAN of person from whom loan is taken

Long-Term-Borrowings
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​Other Long Term Liabilities

Verification

It Includes following:

  • Trade Payables: Check the the Terms and Conditions for Trade Payables. Amount payable within 1 year is to be disclosed in Current Liabilities while remaing amount needs to be disclosed here.

  • Others: Other which cannot be classified above

Documents to be taken and verified

  • Agreement/Invoice mentioning specific terms and conditions.

Short Term Borrowings

Verification

Short term borrowings needs to be classified as follows:-

  1. Loans Repayable on Demand from Bank and other parties

  2. Loans and Advances from related party

  3. Deposits

  4. Other Loans and Advances(Specify Nature)

  • Also disclosed whether the loans are secured or unsecured. Also specify the nautre of security offered. Also specify whether loan is guaranted by directors or any other person

  • Dislcose, in case of default, period and amount of continuing default is to be shown seprately

  • Whether interest are entered in accounting systems at agreed rate. Whether TDS is deducted and deposited on same.

  • In case of loan from Directors, take the declaration that loan has been given to company out of its own fund.

  • Check all the Stock Statement submitted to Bank and whether the same is tallied with Books.

Documents to be taken and verified

  • Bank Statement as on date of Balance Sheet, Balance Confirmation letter and declaration from director, PAN of person from whom loan is taken, Stock Statement submitted to Bank.

Short-Term-Borrowings
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Trade Payables

Verification

Need to be disclosed as follows:

  1. Outstanding Dues to Micro and Small Enterprises

  2. Outstanding Dues to Other than Micro and Small Enterprises

  • Principal and Interest due under MSMED Act,2006 needs to be shown seperately

  • The amount of interest paid under MSMED Act,2006 along with payment made to supplier beyond the appointed date during year

  • The amount of interest paid under MSMED Act,2006 along with payment made to supplier beyond the appointed date during year

  • Also disclosed whether the loans are secured or unsecured. Also specify the nautre of security offered. Also specify whether loan is guaranted by directors or any other person

  • Dislcose, in case of default, period and amount of continuing default is to be shown seprately

  • Whether interest are entered in accounting systems at agreed rate. Whether TDS is deducted and deposited on same.

  • In case of loan from Directors, take the declaration that loan has been given to company out of its own fund.

  • Check all the Stock Statement submitted to Bank and whether the same is tallied with Books.

  • The amount of interest paid under MSMED Act,2006 along with payment made to supplier beyond the appointed date during year

  • Need to classified each creditor into Micro and Small Enterprises and other than Micro and Small Enterprises

  • Take Confirmation from some of the parties and reconcile the same in case of differences

  • Check long pending dues and reasons for not payment

  • Check creditors having debit balances and obtain confirmation of same.

  • Check the MSME Form I filed with ROC

  • In case the Debit Balance is actual advance than obtain confirmation of same.

  • In case payment to creditors is outstanding from more than 180 days, check whether GST credit is reversed for same.

Documents to be taken and verified

  • Certificate of MSME of creditors, Balance Confirmation, Ledger Statement and ROC form MSME-I

Trade-Payables
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Other Current Liabilities

Verification

Other Current Liabilities include

  • Current Maturities of long term debts

  • Current Maturities of finance lease obligation

  • Interest accrued but not due on borrowings

  • Interest accrued and due on borrowings

  • Income received in Advance

  • Unpaid Dividends

  • Share Application money received and due for refund and interest accrued there on

  • Unpaid maturity deposits and interest accrued there on

  • Unpaid matured debentures and interest accrued there on

  • Other Payables (specify the nature) includes, retention monies, security deposit,etc

Documents to be taken and verified

Certificate of MSME of creditors, Balance Confirmation, Ledger Statement and ROC form MSME-I

  • Current Maturities of long term debts:- Repayment Schedule

  • Current Maturities of finance lease obligation: Finance Lease Agreement and payment schedule

  • Interest accrued but not due on borrowings: Repayment Schedule

  • Interest accrued and due on borrowings: Bank balance certificate

  • Income received in Advance: Confirmation from party

  • Unpaid Dividends: Check whether same has been deposited in separate bank account

  • Share Application money received and due for refund and interest accrued there on: Share Application Form, Minutes of Board Meeting, Check whether it is not pending beyond 60 days.

  • Unpaid maturity deposits/debentures and interest accrued there on: Bond/Debenture certificate, Bank Statement, In case issued during the year, compliance under section 42 of Companies Act, 2013

Short Term Provisions

Verification

Short Term Provision includes following:

  1. Provision for Employee Benefit

  2. Others (include Provision for Income Tax and Dividends, taxes payable, ESIC/PF payable, expenses payable,etc)

TDS Payable:

Check whether TDS is deducted correctly wherever applicable. Check whether the TDS payable reflecting in ledger is actually payable. In case of differences, find reasons for not making payment and journal entry should be passed accordingly. Ensure TDS payment and filing TDS return should be within due date.


Input GST:

  • Prepare the list of all Purchase invoices along with ratewise details.

  • Reconcile the same with GSTR2A. Inform the client in case of any missing bills in GSTR2A. Check the Invoice if there is any mismatch in data. Call for Purchase Invoice if any invoice find in GSTR2A but not in accounts.

  • Check whether credit of RCM paid in previous month is taken

No credit has been taken for following

  1. Purchases for construction Immovable Assets,

  2. Motor Vehicle(except in case of business of supplying vehicles, transporter of goods/passenger, imparting training of such vehicles)

  3. Foods & Beverages, Outdoor Catering, Beauty Treatment, Health Services, Cosmetic and Plastic Surgery(Except they are dealing in same business i.e. category of inward and outward supply is same)

  4. Service of General Insurance (except in case of business of supplying vehicles, transporter of goods/passenger, imparting training of such vehicles, Manufacturer of motor vehicle or in supply of General Insurance Service)

  5. Service of Servicing/repairs and maintenance of vehicles (except in case of business of supplying vehicles, transporter of goods/passenger, imparting training of such vehicles, Manufacturer of motor vehicle)

  6. Membership in Club, Health and Fitness center(except cleint are in same business)

  7. Rent a Cab, Health and Life Insurance Services(except cleint are in same business)

  8. Travel Benefit for employees on vacations

  9. goods lost, stolen, destroyed, written off or given off as gift or free samples

Input Tax credit taken during the month should be transfer to GST payable account.


Output GST:

  • Prepare the list of all Sales invoices along with ratewise details.

  • Confirm that all the Sales Invoices are in series and no sales invoice is missing

  • Confirm whether GST number are provided for all B2B sales

  • Prepare HSN/SAC wise summary of all Sales Invoices in case turnover exceeds Rs.1.5 crore in year

  • Calculate the RCM-GST and made the provision accordingly. GST under Reverse Charge Mechanism is require to be paid on Freight, Advocate Fees, Director's Remuneration, etc

  • Output GST is to be transfer to GST payable

GST Payable:


Check whether the GST payable reflecting in ledger is actually payable. In case of differences, find reasons for not making payment and journal entry should be passed accordingly. Ensure the GST payment and filing return should be within due date


GST Reconciliation:

Check the GST payable or Excess Credit as per last return of Audit Period say March. In case the same is not matched with GST payable/Excess Credit in Books, reconcile the same. Also details of availed and Utilised ITC needs to be given in Clause 27(a) of Form 3CD


Others:

  • All the provision i.e. Salary, PF, ESIC, Telephone, Electricity, etc for period under consideration is require to be made. Pass the Journal Entry accordingly. Ensure that PF and ESIC payment is made within due date.

  • Check whether all the payments has been made in next financial year.

  • Bonus payment needs to be done before due of filing return of Income u/s.43B of Income Tax Act. The same needs to be reported in clause 26 of Form 3CD

Documents to be taken and verified


Salary Sheet, Grauity calculation, Income Tax Computation, Board Resolution for Dividend declaration, Bills against which provsion are made, taxes ledger,etc


Tax-Audit-43B
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Tax-Audit-GST-Reco
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Fixed Assets

​Fixed Assets Include following:

  1. Tangible Assets

  2. Intangible Assets

  3. Capital WIP

  4. Intangible Asset under development

Verification

  • Check the Fixed Asset Register and take the bills of all addition and deletion from fixed assets

  • Check Physical verification report, if any

  • In case of Immovable property check the title deeds such as Index-II to ensure it is in company name

  • Assets below Rs.5000/- purchase during the year to be expense out -In case of Capital WIP/Intangible Asset Under development, all expenses needs to be transferred is correctly done. For eg. In case of Building WIP, all labour charges used for building is correctly debited to Building-WIP.

  • In case of Capital WIP/Intangible under development obtain sufficient evidence and declaration that assets are put to use from so date

  • In case of Disposal of Asset, obtain documentry evidence/sales invoice and Board Resolution

  • Check that no GST credit is taken for purchases made for Immovable Assets i.e. Cements, Steel, labour charges, etc

  • Prepare Fixed Assets Schedule as per Income Tax and report the same in Clause 18(i) of Form 3CD

Documents to be taken and verified


All Fixed Asset Addition Bills, Fixed Asset Sales Bill, FA Register


Fixed-Assets
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Non Current Investments

  1. Non-current investments shall be classified as trade investments and other investments and further classified as:

  2. Investment property;

  3. Investments in Equity Instruments;

  4. Investments in preference shares;

  5. Investments in Government or trust securities;

  6. Investments in debentures or bonds;

  7. Investments in Mutual Funds;

  8. Investments in partnership firms;

  9. Other non-current investments (specify nature).

  10. Investments in Body Corporate classified as Investments made into subsidiaries, associates, joint ventures and controlled SPV

  11. Number and Face Value in each investment disclosed wherever applicable

  12. Investments which is partly paidup should be disclosed seperately

  13. In regard to investments in the capital of partnership firms, the names of the firms with the names of all their partners, total capital and the shares of each partner shall be given.

  14. Basis of valuation disclosed in case investments carried at other than cost

  15. Aggregate amount of Quoted and Unquoted investments should be disclosed. In case of quoted investments, market value should also be disclosed

  16. Provision for diminution in value of investment should also be disclosed

  17. If investments redeemed partly within 12 months, such amount should be disclosed as current investments and balance in non current investments

Documents to be verified

  • Demat Ledger/Share Certificate/Confirmation from Issuer or custodian or broker in case of Share and Debenture

  • Partnership Deed, Financials of Partnership, confirmation,etc

  • Documents for Basis of Valuation where investments are carried at other than cost

Non-Current-Investments
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Deferred Tax Assets

Deferred Tax

Deferred Tax is to be made for difference in Book Profit and Taxable Profit. Difference may be temporary (43B disallowance) or permanent (80IB exemption). No Deferred Tax asset/liability is to be made for permanent difference

  • Case 1: If book profit is higher than taxable profit than you pay less tax now and more in future. In such case deferred tax liability to be created

  • Case 2: If book profit is less than taxable profit than you pay more tax now and less in future. In such case deferred tax assets to be created. In case of loss also deferred tax assets need to be created if there is reasonable certainty of future income.

Documents to be verified:

Statement of Taxable Income.

Long Term Loans and Advances

Points to be checked

  • Long term loans and advances classified as follows:

  • Capital Advances

  • Security Deposits

  • Loans and Advances to related party

  • Others

  • It can further be classified as

  • Secured, considered good

  • Unsecured, considered good

  • Doubtfull

  • Allowance for bad and doubtful loans and advances under relevant head disclosed separately

  • Are Loans and Advances due by directors or other officers either severally or jointly with any other person are disclosed separately

  • Are Loans and Advances due by firms or companies in which any director/s is partner or director or member are disclosed separately

  • In case of secured, check the security offered and disclosed the same

  • Loans/advances which will be due within 12 months needs to be reported under current loans and advances

  • Check whether provision of section 185 and section 186 are complied.

  • Section 185 restricts loan to Directors, relatives of directors, partner of firm in which director is partner, director of holding company, to partnership firm in which director/holding company is partner

Documents to be verified

  1. Loan Agreement

  2. Documents which confirm the capital advances and security deposits

  3. In case of related party loan, Special Resolution(Members meeting) and Form MGT-14 is required

  4. In case of secured loans and advances, documents with respect to security offered

Other Non Current Assets

Other Non Current Assets should be classified as:

  • Long Term Trade Receivables

  • Secured, considered good

  • Unsecured, considered good

  • Doubtful

  • Allowance for Bad and Doubtful debts under relevant head disclosed separately

  • If its dues by Directors or Officers or any of them severally or jointly with other persons or amount due by firms/private companies in which any director is partner or director or member separately

Documents to be verified

  1. Confirmation from parties

  2. Management representation regarding list of firms/companies in which any of the director is partner or director or member

Current Investments

  1. Current investments are investments which are going to be redeemed within 12 months. It shall be further classified as trade investments and other investments and further classified as:

  2. Investment property;

  3. Investments in Equity Instruments;

  4. Investments in preference shares;

  5. Investments in Government or trust securities;

  6. Investments in debentures or bonds;

  7. Investments in Mutual Funds;

  8. Investments in partnership firms;

  9. Other non-current investments (specify nature).

  10. Investments in Body Corporate classified as Investments made into subsidiaries, associates, joint ventures and controlled SPV.

  11. Number and Face Value in each investment disclosed wherever applicable.

  12. Investments which is partly paid-up should be disclosed separately

  13. In regard to investments in the capital of partnership firms, the names of the firms with the names of all their partners, total capital and the shares of each partner shall be given.

  14. Basis of valuation disclosed in case investments carried at other than cost.

  15. Aggregate amount of Quoted and Unquoted investments should be disclosed. In case of quoted investments, market value should also be disclosed

  16. Provision for diminution in value of investment should also be disclosed.

  17. If investments redeemed partly within 12 months, such amount should be disclosed as current investments and balance in non current investments.

Documents to be verified

  1. Demat Ledger/Share Certificate/Confirmation from Issuer or custodian or broker in case of Share and Debenture

  2. Partnership Deed, Financials of Partnership, confirmation, etc.

  3. Documents for Basis of Valuation where investments are carried at other than cost

​Inventories

Inventories shall be classified as:

  1. Raw materials;

  2. Work-in-progress;

  3. Finished goods;

  4. Stock-in-trade (in respect of goods acquired for trading);

  5. Stores and spares;

  6. Loose tools;

  7. Others (specify nature).

  • Goods-in-transit shall be disclosed under the relevant sub-head of inventories.

  • Mode of valuation shall be stated.

Documents to be verified:

  • Certificate from Management

  • Report on Physical verification conducted by Management and frequency of such verification

Tax-Audit-Capital-Asset-Converted-to-Stock
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Download XLSX • 8KB

Trade Receivables

Verification

  • Only amount due for Goods Sold or Services Rendered in normal course of business classified as trade receivables

  • Amount due for otehr contractual obligation such a Fixed Assets Sold, Insurance Claim,etc are to be shown in Other Current Assets

  • Aggregate amount of Trade Receivables outstanding for a period exceeding six months from the date they are due for payment should be separately stated.

Trade receivables shall be sub-classified as:

  1. Secured, considered good;

  2. Unsecured, considered good;

  3. Doubtful.

  • Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately.

  • Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated.

  • Take the Billwise details of all receivables

  • In case of credit balances check whether it is genuine advances or Sales Invoices are not raised

  • In case of advances received for providing services, check whether GST is paid on same

  • Check all long pending debtors which are outstanding for more than 6 months and reasons for same

  • Take the confirmation from major parties. In case of difference, reconcile the same

  • In case of Bad Debts, management representation should be taken

Documents to be verified:

Balance Confirmation and Ledger Statement, Management Representation, in case of Bad Debts

Cash and Cash Equivalents

Verification-Cash in Hand

  • Take Management certificate with respect to Balance Cash as on last day of Financial Year.

  • Ensure that there is no negative cash balance in Cash Book on any particular day.

  • Ensure that there are no cash payments in excess of Rs. 10,000/- for expenses/fixed assets and Rs.35000/- for transport charges.

  • If there is huge and irregular cash deposit/withdrawals then obtain the reason for same.

  • In case it exceeds Rs.10000/-, the same needs to be reported in Clause 21(d) of Form 3CD.

  • Ensure that Amount of loan taken or repaid in cash should not exceed Rs.20000/- per person in a year.

  • In case loan taken/repaid exceeds Rs.20000/-, the same needs to be reported in Clause 31 of Form 3CD.

  • Ensure that no cash is received against the Sale Bill exceeding Rs.200000/-

  • In case cash received against Sales Bills exceeds Rs.200000/-, the same needs to be reported in Clause 31 of Form 3CD. Also check whether SFT in Form 61A is filed

Verification-Cash at Bank

  • Check the Bank Reconciliation Statement in case of Balance mismatch.

  • Check any long pending reconciliation entry, if any

  • Whether fixed deposit amount is in conformity with FD Statement provided by Bank.

  • Make entry of Interest accrued on FD

Documents to be taken and verified

Management certificate for Cash in Hand, SFT in Form 61A, Bank Balance Certificate, FD Statement


Tax-Audit-Sales-above-Rs.200000
.xlsx
Download XLSX • 41KB

Short Term Loans and Advances

Verification

Short Term Loans and Advances are loans and advances due within 12 months.

  • Short term loans and advances classified as follows:

  • Capital Advances

  • Security Deposits

  • Loans and Advances to related party

  • Others

  • It can further be classified as

  • Secured, considered good

  • Unsecured, considered good

  • Doubtful

  • Allowance for bad and doubtfull loans and advances under relevant head disclosed seperately

  • Are Loans and Advances due by directors or other officers either severally or jointly with any other person are disclosed seperatley

  • Are Loans and Advances due by firms or companies in which any director/s is partner or director or member are disclosed seperatley

  • In case of secured, check the security offered and disclosed the same

  • Check whether provision of section 185 and section 186 are complied.

  • Section 185 restricts loan to Directors, relatives of directors, partner of firm in which director is partner, director of holding company, to partnership firm in which director/holding company is partner

Documents to be verified

  1. Loan Agreement

  2. Documents which confirm the capital advances and security deposits

  3. In case of related party loan, Special Resolution(Members meeting) and Form MGT-14 is required

  4. In case of secured loans and advances, documents with respect to security offered

Other Current Assets


Verification

This is an all-inclusive heading, which incorporates current assets that do not fit into any other asset categories. For Example: TDS deducted, Advance Tax, etc

  • Check whether Advance Tax is correctly deposited

  • Reconcile the TDS with 26AS

  • In case of TDS deducted on Advance payment received, such TDS cannot be claimed in current financial year and to be carry forward

  • In case Income is booked in current year and TDS is deducted in previous year on advances received, check whether TDS is claimed in current financial year

Documents to be taken and verified

Reconciliation of 26AS

Contingent Liabilities

Verification

  • Contingent liabilities shall be classified as:

  1. Claims against the company not acknowledged as debt;

  2. Guarantees;

  3. Other money for which the company is contingently liable.


  • Commitments shall be classified as:

  1. Estimated amount of contracts remaining to be executed on capital account and not provided for;

  2. Uncalled liability on shares and other investments partly paid;

  3. Other commitments (specify nature).

Documents to be taken and verified

Bank Certificate for Outstanding Bank Guarantee, Agreement which verify the claim

LEDGER SCRUTINY-TRADING AND PROFIT & LOSS ACCOUNT

Revenue from Operations

Verification

  • Check the Sales Register with GST Returns. In case of differences, reconcile the same.

  • Obtain Rate wise details of Sales

  • Check the Output GST with Rate wise details of Sales. In case of differences, reconcile the same and make changes accordingly

  • Check Credit Note and Debit note in Sales. Whether GST is charged on such debit note and credit note

  • Check whether GST rate is correctly charged on all items/services

  • In case of Export of Goods, ascertain the FOB value of exports

  • Company should disclose as follows:

  1. Sales of Products

  2. Sales of Services

  3. Other Operating Revenues

  4. Less: Excise Duty/GST

  • Sales of Manufacturing Scrap should be classified as Other Operating Revenue

Documents to be taken and verified

Reconciliation of GST returns and Sales Register, Ratewise Sales

Revenue-from-Operations
.xlsx
Download XLSX • 9KB

​Other Income

​Verification

  • Other Income to be classified as:

  1. Interest Income

  2. Dividend Income

  3. Net Gain/Loss on Sale of Investment

  4. Other Non Operating Income

  • Check the Interest Income with Bank Certificate and Form 26AS

  • Dividend Income with dividend warrant or Broker Statement

  • Check the Broker Profit and Loss Statement for gain of listed company shares

Documents to be taken and verified

Bank Interest Certificate, Broker Statement for Dividend, Profit and Loss statement from Broker

Purchases

  • Check whether any purchases booked directly thorugh bank payment entry.

  • Check whether TDS is deducted wherever applicable

  • Check all the credit entries in Purchase Ledger and whether it is correctly accounted for.

  • Check that no Indirect Expenses/Fixed Assets account were debited to Purchase Ledger

Expenses

Verification

  • Check all expenses were accounted under proper head

  • Check no major entry was directly routed through bank/cash. In case the same has been made, check the physical copy of Invoice/Receipt/Voucher

  • Check the credit entries in all expenses ledger

  • Check that no GST credit is taken for expenses such as

  1. Foods & Beverages, Outdoor Catering, Beauty Treatment, Health Services, Cosmetic and Plastic Surgery(Except they are dealing in same business i.e. category of inward and outward supply is same)

  2. Service of General Insurance (except in case of business of supplying vehicles, transporter of goods/passenger, imparting training of such vehicles, Manufacturer of motor vehicle or in supply of General Insurance Service)

  3. Service of Servicing/repairs and maintenance of vehicles (except in case of business of supplying vehicles, transporter of goods/passenger, imparting training of such vehicles, Manufacturer of motor vehicle)

  4. Membership in Club, Health and Fitness center(except cleint are in same business)

  5. Rent a Cab, Health and Life Insurance Services(except cleint are in same business)

  6. Travel Benefit for employees on vacations

  • Check whether Prior Period expenses debited. In case it is debited the same needs to be reported under clause 27 of Form 3CD

  • Check whether any personal expenditure of Proprietor/Partner is not debited to profit and loss account

  • Check whether Donation is debited in Profit and Loss Account. If yes, take the receipt of same which contain the PAN of trust to whom donation is paid. Also check whether the Trust is register under 80G

  • Check the following expenses anf tkae the receipt of same as the same needs to be reported under clause 21(a) of Form 3CD

  1. Advertisement expenditure in any souvenir, brochure, tract, pamphlet or the like, published by a political party

  2. Expenditure incurred at clubs being entrance fees and subscriptions

  3. Expenditure incurred at clubs being cost for club services and facilities used

  4. Expenditure by way of penalty or fine for violation of any law for the time being force.

  • Check whether TDS is dedcuted wherever applicable. In case TDS is not deducted, 30% of expenses was disallowed and same needs to be reported in Clause 21(b) of Form 3CD

  • Prepare comparative statement for profit and loss account. Justification should be taken from management for variation in balance if it is beyond 10 to 15%.

  • Check if there is any expenses against which payment is made to relative. If yes same needs to be reported in Clause 23 of Form 3CD

  • Check whether all statutory payments such as TDS, PF,ESIC,etc was made within due date

  • In case of delay in ESIC and PF, the same needs to be reported in Clause 20 of Form 3CD

  • Prepare TDS TCS Summary as same needs to be reported in Clause 34 of Form 3CD


Management Representation

Take the Signed copy of Management Representation (MR)

SA-MR-Letter
.doc
Download DOC • 140KB

​Preparing Reports

Preparing Reports such as Balance Sheet, Profit Loss account and there schedules.

Preparing Reports for Form 3CD

Preparing Reports for Form 3CD

Data Entry in Income Tax utility/software

Make data entry in Income Tax Utility/Software

Filing of Form 3CD

File the Form 3CD on Income tax portal

Generate UDIN

Generate UDIN for Form 3CD and Financials

Furnishing of Tax Audit Report

Tax Audit Report is to be furnished by Tax Auditor on Income Tax Portal from his login details in the capacity of Chartered Accountant. Once Tax Auditor uploads the Tax Audit Report, it should be accepted or rejected by a taxpayer for his login portal. If the taxpayer denies the report, the same procedure must be followed again until the taxpayer agrees with the audit report.


Conclusion


As a taxpayer, you must comply with section 44ab of the income tax act 1961. This section states that all the taxpayers have to get an audition report furnished after conducting an audit for the books and accounts.


A tax audit report is a detailed review of a taxpayer's financial records. The main objectives of a tax audit are to identify any discrepancies or irregularities in section 44ab income tax act 1961, which states that taxpayer's accounts and assess the potential tax liability.

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