Auditor is a independent person who vouches for the correctness of books of accounts. He reports on the true & fairness of the financial statement. He may be appointed by the organization itself or may be appointed by the government authority under a law.
There are various types of audit conducted in a business and depending on those the auditors differs. A business can have multiple functions, based on that there may be different audit for each function.
The main types of auditors:
Internal Auditor: These are the auditor who conducts internal audit and check internal controls of an organization. They are appointed by the management and they report to the management. There is a compulsion to appoint internal auditor for listed companies.
Statutory Auditor: They are appointed under the law. It is compulsory for every company to appoint a statutory auditor. They report to the shareholders of a company in predefined format. The statutory auditor must have qualifications as per law to conduct statutory audit.
System or IT Auditor: They are the auditors who conducts audit related to information Technology of the organization. This type of audit may be covered under statutory or internal audit itself.
Cost Auditor: It is performed by cost auditor to check the relevancy & correctness of the cost. It is mandatory for only some companies having a specified turnover.
Secretarial Audit: It is performed by company secretaries to check the secretarial practices of a company and their statutory compliance.
Concurrent Audit: This type of audit is performed as & when a transaction is incurred. It is conducted simultaneously with the business transactions.
The main Functions of an auditor are:
Vouching: To check the various invoices & related documents
Sampling: To select the sample for audit based on materiality.
Assessing risk: Calculate the risk involved with various transactions.
Reporting: Report the findings of the audit to the concerned persons.
Ethical requirement of an auditor are:
Integrity: This is the quality of being honest and has moral principles
Objectivity: The quality of being impartial and remain fair
Professional Competence and due care: He must possess sufficient qualification and experience
Confidentiality: Must not disclose the internal findings with third party
Professional behavior: Must have professional behavior throughout the audit
An internal auditor can not be statutory auditor & Vice versa.
As per section 144 of companies Act, 2013 a statutory auditor can not be a internal auditor. The section also listed other services which a statutory auditor can not render.
An Statutory Auditor can be a Tax Auditor
The section 144 does not say anything about the tax audit service. The section refers to the management service, but nowhere in the act management service is defined. However when we check the definition of management services as defined by the ICAI, it includes tax audit. But still one can not say it is included in section 144. Read this article for more detail on this topic.
An internal auditor can not be a tax auditor
The ICAI has issued a clarification that an internal auditor can not be a tax auditor. It is decided in 281th meeting of the council held on 3rd to 5th October 2008.
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