“Auditing is a systematic examination of financial statements through collection of sufficient and appropriate evidence with an intention of expressing an opinion whether the financial statement give true and fair picture or not.”

Due to strong intention of human to mis-state information, auditing and due diligence have become a legal requirement across the GLOBE.

All audits are not the same. They are different based on to whom it is to be reported and on which area it is to be reported. For e.g. Statutory audit is mandated by Law and Statue and it is them to whom it is to be reported.

There are different types of audit some of them are as follows:-

  1. Statutory audit:Statutory audits are conducted in order to report the state of a company’s affairs to the government / shareholders. The audit report of statutory audit is made in the form prescribed by the government.
  2. Internal Audit:This audit is conducted by the management of the company itself. We can say internal audit is a preparation for other independent audits. But the main objective of internal audit is to check the status of finance and operational efficiency of the company. This audit can be conducted by an independent party or by a company’s own staff. The report of internal audit is submitted to the management.
  3. Tax Audit ::-Tax Audit is mandated u/s 44AB of the income tax act, 1961. It state that every person whose business turnover exceeds INR 1 crore and every person working in a professional with gross receipts exceeding INR 50 lacs must have their accounts audited by an independent chartered accountant. The Tax audit report is to be obtained by September 30th after the end of previous fiscal year. Non compliance attracts penalty of 0.5% of turnover or INR 1.5 Lacs whichever is lower.
  4. System Audit:System means unification of activities, instruments, material, and people to achieve a specific goal. For e.g. Information system is collection of hardware and software acting together to serve a common purpose of providing information. When we say system audit we specifically refer to management system audit. A system audit is an audit of system/subsystem against system requirement. The main purpose of this audit is to check whether the system/subsystem is working according to the prescribed objective or not.
  5. Due Diligence:Due diligence is a process of thorough and objective examination that is undertaken before corporate entities enter into any major corporate action such as mergers and acquisitions, issuing new securities, project financing, debt-securitization amongst others. Due diligence assists the investor in gathering all the necessary and important information about the organization he is acquiring or investing in including critical success factor as well as strength and weakness.

Due diligence can be sub classified as follows:-

Commercial or operational due diligence :It involves an evaluation from commercial, strategic or operational perspective. For e.g. Whether proposed merger will create operational synergies or not
Financial due diligence : It is performed on the books of accounts and other information directly related to financial matters to obtain information about the financial health of the organization.
Tax due diligence :
• Information systems due diligence :
Legal due diligence :It may be required where legal aspects of functioning of the entities are reviewed. For e.g. legal aspects of property owned by the entity or compliances with various statutory requirements under various laws.
Environmental and personal due diligence : Environmental and personal due diligence are carried out in order to establish whether various propositions with regards to environment and personnel of the enterprises under review are appropriate.

"Auditing is a honest effort to unearth the hidden issue but does not assure that all the information is correct and accurate."