AUDIT AND ASSURANCE

Audit and Assurance refers to the systematic and independent examination of financial statements, financial records, and other relevant documents of an organization. The primary objective is to provide reasonable assurance that the financial reports present a true and fair view of the financial position and performance of the entity and that they have been prepared in compliance with the applicable financial reporting framework and statutory requirements.

Key Aspects

Systematic Assessment of Financial Documents and Reports

An audit involves a structured and methodical review of financial documents, transactions, books of account, and reports. This includes examining journal entries, ledger balances, trial balances, and the final financial statements. The process is conducted using well-established auditing standards such as the International Standards on Auditing (ISA) or, where applicable, national standards like the Standards on Auditing (SA) issued by the Institute of Chartered Accountants of India (ICAI) under the Companies Act, 2013

Compliance with Applicable Laws and Financial Reporting Frameworks

The audit ensures that the financial statements are prepared in accordance with the generally accepted accounting principles (GAAP) or Ind-AS, IFRS, or other prescribed frameworks. Furthermore, audits assess compliance with legal and regulatory frameworks such as: (a) Companies Act, 2013 (India) (b) Income Tax Act, 1961 (c) GST Act (d) SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, etc. Non-compliance or deviations, if any, must be reported in the audit report as per statutory requirements.

Assessment of Internal Controls and Risk Management Systems

As part of the audit, the auditor evaluates the design and operating effectiveness of the entity’s internal control systems, including financial and operational controls. This helps in identifying control weaknesses, potential risks, and areas for improvement, ultimately leading to better corporate governance.

Reasonable Assurance on True and Fair View

The auditor's opinion provides reasonable assurance, not absolute assurance, that the financial statements are free from material misstatement, whether due to fraud or error. The term "reasonable assurance" reflects a high, but not absolute, level of confidence—considering the inherent limitations of audit procedures.

Mandatory vs. Voluntary Audits

While audits are mandated by law for certain entities—such as companies, LLPs, and NGOs based on turnover thresholds—many businesses and organizations voluntarily opt for an audit to enhance their credibility, ensure transparency, and improve stakeholder confidence. Voluntary audits are often undertaken for purposes such as applying for loans, attracting investors, or improving internal controls.

Independent Opinion by External Auditors

One of the core principles of auditing is independence. The audit is carried out by an independent third party—typically a Chartered Accountant or a Registered Auditor—who is not influenced by the management of the entity. This independence ensures unbiased evaluation and enhances the reliability and authenticity of the financial information reported.