Why audit is conducted in any company in India?

Auditing is a crucial process for any company in India, as it helps to ensure the accuracy and integrity of financial statements and records. The primary purpose of an audit is to provide assurance that the financial statements of a company are free from material misstatements, whether caused by fraud or error.

In India, the Companies Act, 2013 and the Securities and Exchange Board of India (SEBI) regulations require companies to undergo regular auditing. The Companies Act, 2013 stipulates that all companies must appoint an independent auditor to conduct an annual audit of their financial statements. This is to ensure that the financial statements are true and fair, and that they comply with the accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI).

SEBI regulations also require listed companies to undergo a statutory audit, which is conducted by a registered chartered accountant. The statutory audit helps to ensure that the financial statements of listed companies comply with the accounting standards and the listing agreement with the stock exchange.

Additionally, The Income Tax Act, 1961 requires every company to get their accounts audited by a Chartered Accountant (CA) if the turnover of the company exceeds Rs. 1 crore or the total income exceeds Rs. 25 lakhs.

Apart from the legal requirements, an audit also helps the management of a company to identify potential areas of improvement in their internal controls and financial reporting processes. This can lead to better decision-making and improved efficiency in the company's operations.

Auditing also helps to detect and prevent fraud in a company. Auditors use various techniques, such as testing of transactions and analytical procedures, to detect any discrepancies or irregularities in the financial statements. This can help to uncover any fraudulent activities that may be taking place within the company

In conclusion, an audit is required in any company in India for various reasons. It helps to ensure the accuracy and integrity of financial statements, comply with legal and regulatory requirements, and improve internal controls and financial reporting processes. Additionally, it also helps to detect and prevent fraud in a company.

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CA Tushar Makkar
Ex-Pwc | CA AIR 47 Nov' 17 | YouTuber 16k+ | Expertise in audit and internal financial controls