A financial audit is, an audit of the financial statements is the verification of the financial statements of a legal entity with the view to express a reasonable audit opinion. A tax audit is an investigation into the background of tax returns submitted by an individual or business to a tax agency.
Audit means an examination of books of accounts, conducted with the purpose of establishing the fact that the accounting records presents a true and fair view. Many people get confused amidst statutory audit and tax audit in this context. While the former is an audit carried out under the Companies Act, the latter is an audit conducted under the Income Tax Act.
The rules related to the audit of financial statements of an entity are dealt with in the statutory audit. On the other extreme, the provisions associated with taxation are dealt with in the tax audit. Take a read of this article to know the differences between statutory audit and tax audit.
Definition of Statutory Audit
A statutory audit is an audit, which is made mandatory by law. The purpose is to check the truthfulness and fairness of accounting records. The appointment of auditors, his removal, rights and duties, remuneration, are set according to the provisions of the law, as applicable to the organization.
In the case of companies, the auditor is appointed by the shareholders at the annual general meeting (AGM), and the remuneration is also fixed by them. Companies registered under The Companies Act, 1956 need to get their accounts audited by a qualified chartered accountant, only after the preparation of the financial statements. The statutory auditor presents his report, in which he expresses his opinion on the true and fair view of the final accounts. In addition to this, he ensures the compliance of the financial statements as per the provisions of the act.
Tax Audit is defined as an audit of the accounts of the taxpayer, by a Chartered Accountant, for the requirement of Section 44AB, in which the auditor needs to express his views and observation by way of the audit report.
An audit which is held mandatory, under the Income Tax Act, 1961 only on the condition that: The assessee is covered under the definition of person as per Income Tax Act, who carries on a business or profession with an object of earning profit/gain, maintains books of accounts, the profits or gains are calculated under Chapter IV, where income is subject to tax and loss is allowable.