Audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organisation.
Audit can be done internally by employees or heads of a particular department and externally by an outside firm or an independent auditor. The idea is to check and verify the accounts by an independent authority to ensure that all books of accounts are done in a fair manner and there is no misrepresentation or fraud that is being conducted.
All the public listed firms have to get their accounts audited by an independent auditor before they declare their results for any quarter.
Who can perform an audit? In India, chartered accountants from ICAI or The Institute of Chartered Accountants of India can do independent audits of any organisation. CPA or Certified Public Accountant conducts audits in USA.
Audit inquiry form
There are four main steps in the auditing process
The first one is to define the auditor’s role and the terms of engagement which is usually in the form of a letter which is duly signed by the client.
The second step is to plan the audit which would include details of deadlines and the departments the auditor would cover. Is it a single department or whole organisation which the auditor would be covering. The audit could last a day or even a week depending upon the nature of the audit.
The third important step is compiling the information from the audit. When an auditor audits the accounts or inspects key financial statements of a company, the findings are usually put out in a report or compiled in a systematic manner.
The last and most important element of an audit is reporting the result. The results are documented in the auditor’s report.
Accounting is a systematic process of identifying recording measuring classify verifying some financial transactions in the preparation of financial statements. It reveals profit or loss for a given period and the value and the nature of a firm’s assets and liabilities and owners’ equity.
In other words, accounting is a practice and body of knowledge concerned primarily with
- Method for recording transactions,
- Keeping a financial record,
- Performing internal audit
- Reporting and analyzing financial information to the management and
- Advising on taxation matters.
In Case of
Trading,Manufacturing and customer services oriented organization,the sum of all income and expenses is to as profit and loss account Social service oriented
organization like schools,Hospitals and Government organization , Banks it is referred to as Income and expenditure account
Note:-Trail Balance is not Financial statement . It is summary of all debit and credit transactions.
TAX is compulsory payment to the government by a tax payer
TAX shall means any tax which must be paid by virtue (by force or authority)of this law & shall include any fine , interest or any other burden stipulated (terms of agreement or contract) by virtue of this law
All countries in this world is charging taxes of some sort and there is no country in the world which does not charge any tax
As a responsible citizen of the country, it is your duty to pay the taxes. But it is also equally important to know the different types of taxes implemented in the country. All the various taxations in India can be broadly classified into two categories- direct and indirect tax. Let us have a detailed look at the meaning of these two types of taxes.
What is Direct tax?
In simple words, a direct tax is a tax that you directly pay to the authority imposing the tax. For instance, income tax is imposed by the government, and you pay it directly to the government. These taxes cannot be transferred to any other entity or person. There are several acts which govern direct taxes.
In India, CBDT (Central Board of Direct Taxes) which is governed by the Department of Revenue is responsible for the administration of direct taxes. The department is also involved in planning and providing inputs to the government regarding the implementation of direct taxes.
Common Types of Direct Taxes in India
Some of the most common types of direct tax implemented in India are as follows-
1. Income Tax
The most common type of direct tax in India is income tax. It is imposed on the income you earn in a financial year based on the income tax slabs of the IT department. The tax is paid by individuals as well as businesses directly to the IT department. For individual taxpayers, there are also several tax deductions available under various sections of the IT Act.
2. Securities Transaction Tax
If you are involved in stock trading, each of your trade also has a small constituent known as the securities transaction tax. Irrespective of whether you made money on the trade or not, you will have to pay this tax. The broker collects this tax from you and passes on to the securities exchange, which then pays it to the government.
3. Capital Gains Tax
Every time you make capital gains, you will be required to pay capital gains tax. This capital gain could come from the sale of a property or from investments. Based on the capital gains and the duration for which you held the investment, you will be required to pay either LTCG (Long-Term Capital Gains) tax or STCG (Short-Term Capital Gains) tax.
What is Indirect Tax?
While direct taxes are imposed on income and profits, indirect taxes are levied on goods and services. A major difference between direct and indirect tax is the fact that while direct tax is directly paid to the government, there is generally an intermediary for collecting indirect taxes from the end-consumer. It is then the responsibility of the intermediary to pass on the received tax to the government.
Unlike a direct tax, indirect taxes do not depend on the income of an individual. The tax rate is the same for everyone. The CBIC (Central Board of Indirect Taxes and Customs) is mostly responsible for handling indirect taxes in India. Just like CBDT, CBIC also works under the Department of Revenue.
Common Types of Indirect Taxes in India
Some of the most important types of indirect tax in India are as follows-
1. Goods and Services Tax (GST)
GST subsumed as many as 17 different indirect taxes in India like Service Tax, Central Excise, State VAT, and more. It is a single, comprehensive, indirect tax which is imposed on all the goods and services as per the tax slabs laid by the GST council. One of the biggest benefits of GST is that it mostly eliminated the cascading or tax-on-tax effect of the previous tax regime.
2. Customs Duty
When you purchase something that needs to be imported from a foreign country, you are required to pay customs duty on it. Irrespective of whether the product has come to India by air, land, or sea, you will have to pay the customs duty on it. The goal of imposing this indirect tax is to make sure that every product entering India is taxed.
3. Value Added Tax (VAT)
A VAT is a type of consumption tax imposed on products whenever its value increases throughout the supply chain. It is imposed by the state government, which also decides the VAT percentage on different goods. While GST has mostly eliminated VAT, it is still imposed on some products such as items that contain alcohol.