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Audit and Assurance for Startups

What is an Audit?

An Audit is an independent examination of the Financial Information of any entity, whether profit-oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon.

Who should get their accounts audited?

The mandatory applicability of an audit depends on the nature of the legal entity. In the case of LLP, an audit is compulsorily required if the turnover exceeds Rs 40,00,000 or the contribution exceeds Rs 25,00,000 in any year. For a private limited company, their accounts have to be compulsorily audited every financial year.

What are the Objectives of Audit?

The objective of an audit of financial statements, prepared within a framework of recognised accounting policies and practices and relevant statutory requirements, if any, is to enable an auditor to express an opinion on such financial statements.

The auditor’s opinion helps determination of the true and fair view of the financial position and operating results of an enterprise.

The user, however, should not assume that the auditor’s opinion is an assurance as to the future viability of the enterprise or the efficiency or effectiveness with which management has conducted the affairs of the enterprise.

The auditor should review and assess the conclusions drawn from the audit evidence obtained and from his knowledge of business of the entity as the basis for the expression of his opinion on the financial information.

What are benefits of Audit?

  1. Statutory Compliance: It is mandatory to complete the audit once every financial year to meet the statutory requirements.
  2. Protect the interest of fund providers: It safeguards the financial interests of persons who are not associated with the Management of the organization e.g. partners or shareholders.
  3. Moral check on employees: It acts as a morale check on employees from committing defalcation or embezzlement.
  4. Settlement of Taxes, etc: Auditing statements of accounts are helpful in the settling of taxes, negotiating loans, and determining the purchase consideration for a business.
  5. Settlement of Trade Disputes: Audited statements are useful for settling trade disputes for higher wages or bonuses.
  6. Detection of Wastages: Audited statements also help in the detection of wastages and losses and shows the different ways by which these might be checked especially those that occurred due to the absence or inadequacy of internal checks or internal control measures.
  7. Proper maintenance of books of account: Independent audit ascertains whether the necessary books o accounts and allied records have been properly kept and helps the client in making good deficiencies or inadequacies in this respect.
  8. Appraisal of controls: As an appraisal function, the audit reviews the existence and operations of various controls in the organizations and reports weaknesses, inadequacies, etc.
  9. Admission / Retirement of Partner: Audit accounts are of great help in the settlement of accounts at the time of admission or death of the partner.
  10. Grant of license: Government may require audited and certified statements before it gives assistance or issues the license for a particular trade.

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