1. CONDUCTING TAX AUDIT CA. Sanjeev Lalan Singrodia Goyal & Co.
Chartered Accountants

2. Applicability of Tax Audit – S. 44AB
Every person carrying on business whose Gross Turnover, Receipts Or Total Sales exceed Rs. 1 Crore
Every person carrying on profession whose Gross Receipts exceed Rs. 25 Lakhs
Where profits & gains of person from business are taxable on estimated basis u/ss. 44AD, 44AE, 44BB or 44BBB & such person claims his income to be lower than profits & gains so estimated

3. Mandatory e-filing of Tax Audit report
E-filing of tax audit report u/s. 44AB and other reports and certificates made mandatory from AY onwards
Notification No. 34/2013 [F.No. 142/5/2013- TPL]/SO 1111(E), dated 01/05/2013

4. Tax Audit
Objective:
To ensure maintenance of proper records and to assist Income Tax Department to assess correct income of assessee
Main report:
Form 3CA: Applies where accounts of business or profession of assessee have been audited under any other law
Form 3CB: Applies in cases where accounts are not required to be audited by any other law
Annexure I – Financial Reporting
Annexure in Form 3CD to main report

5. Tax Audit Report
Form 3CA – Report that Statutory Audit was conducted in pursuance of Statute applicable to assessee
Form 3CB – Report that Tax Audit is conducted in accordance with provisions of section 44AB. Expression of opinion whether financial statements give true & fair view of-
State of affairs of assessee as represented by Balance Sheet
Profit / Loss or Income / Expenditure as represented by Profit / Loss Account
Expression of opinion as to whether the particulars contained in Annexure 3CD & Annexure I are True & Correct

6. Tax Audit Procedures
Primary responsibility of assessee to prepare relevant information
Tax Auditor (TA) to verify compliance
Nature of Tax Audit
Limits on conduct of Tax Audit.
TA to-
Use professional skill & expertise
Apply Generally Accepted Auditing Procedures as applicable for other audits
Apply techniques of reasonable test audit checks & compliance tests depending upon internal controls of assessee
Follow principles of ‘Materiality’, ‘Prudence’ & ‘Substance Over Form’

7. Tax Audit Procedures Refer to following publications issued by ICAI-
Standards on Audit (SAs)
Guidance Notes (GNs) on Audit Reports & Certificates for Special Purposes
GN on Tax Audit
SA Auditor’s report on financial statements
SA 705 – Modifications to the Opinion
SA 706 – Emphasis of matters

8. Standards on Audit (SAs) issued by ICAI
S.No.
Standards on Auditing
Number
Type
Revised or Not
Effective Date 1
Overall Objectives of the Independent Auditor and the conduct of an audit in accordance with Standards on Auditing.
200 SA
Revised 
Apr 1, 2010 2
Agreeing the terms of Audit Engagements
210
 Revised 3
Quality Control for Audit of Financial Statements
220 4
Audit Documentation
230
Apr 1, 2009 5
The Auditor’s Responsibility relating to Fraud in an Audit of Financial Statement
240
Revised 6
Consideration of Laws and Regulations in an Audit of Financial Statements
250 7
Communication with Those Charged with Governance
260 8
Communicating Deficiencies in Internal Control to Those Charged with Governance and Management
265 9
Responsibility of Joint Auditors
299
Apr 1, 1996 10
Planning an Audit of Financial Statements
300
Apr 1, 2008

9. Standards on Audit (SAs) issued by ICAI
S.No.
Standards on Auditing
Number
Type
Revised or Not
Effective Date 11
Identifying and Assessing the Risk of Material Misstatement Through Understanding the Entity and its Environment
315 SA
Apr 1, 2008 12
Materiality in planning and performing an Audit
320
Revised
Apr 1, 2010 13
The Auditor’s Responses to Assessed Risks
330 14
Audit Considerations Relating to an entity Using a Service Organization.
402 15
Evaluation of Misstatements Identified during the Audits
450 16
Audit Evidence
500
Apr 1, 2009 17
Audit Evidence – Specific Considerations for Selected items
501 18
External Confirmations
505 19
Initial Audit Engagements – Opening Balances
510 20
Analytical Procedures
520 21
Audit Sampling
530

10. Standards on Audit (SAs) issued by ICAI
S.No.
Standards on Auditing
Number
Type
Revised or Not
Effective Date 22
Auditing of Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures
540 SA
Revised
Apr 1, 2009 23
Related Parties
550
Apr 1, 2010 24
Subsequent Events
560 25
Going Concern
570 26
Written Representation
580 27
Using the Work of Another Auditor
600
Apr 1, 2002 28
Using the Work of an Internal Auditor
610 29
Using the Work of an Auditor’s Expert
620 30
Forming an Opinion and Reporting on Financial Statements
700
Apr 1, 2012 31
Modifications to the Opinion in the Independent Auditor’s Report
705 32
Emphasis of Matter Paragraphs and other Matter Paragraphs in the Independent Auditor’s Report
706 33
Comparative Information – Corresponding Figures and Comparative Financial Statements
710
Apr 1, 2011

11. Standards on Audit (SAs) issued by ICAI
S.No.
Standards on Auditing
Number
Type
Revised or Not
Effective Date 34
The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements
720 SA
Apr 1, 2010 35
Audits of Financial Statements Prepared in accordance with Special Purpose Frameworks
800
Apr 1, 2011 36
Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statements
805 37
Engagements to Report on Summary Financial Statements
810 38
Standards on Quality Control 1
SQC
Apr 1, 2009

12. Brief Introduction to SA’s & other relevant standards
SA 200: OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH STANDARDS ON AUDITING
It establishes the independent auditor’s overall responsibilities when conducting an audit of financial statements in accordance with SAs.
It also explains scope, inherent limitations of audit, objectives and responsibilities of an auditor
SA 210: AGREEING THE TERMS OF AUDIT ENGAGEMENTS
It deals with the auditor’s responsibilities in agreeing the terms of the audit engagement with management and, where appropriate, those charged with governance
Consideration to be given by an auditor while engagement acceptance-preconditions for an audit are present
SA 220: QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS
It deals with the specific responsibilities of the engagement partner regarding quality control procedures viz. ethical compliance, independence, quality control review, for an audit of financial statements

13. Brief Introduction to SA’s & other relevant standards
SA 230: AUDIT DOCUMENTATION
This Standard on Auditing (SA) deals with the auditor’s responsibility for preparation and maintenance of an audit documentation
Keep detailed note of evidences relied upon
Maintain all working papers including notes on following-
Work done while conducting audit & by whom
Explanation & information given during course of audit & by whom
Decision on various points taken & judicial pronouncements relied upon
MRs / Certificates issued by client
Design audit programme as would reveal extent of checking & ensure adequate documentation

14. Brief Introduction to SA’s & other relevant standards
SA 250: CONSIDERATION OF LAWS AND REGULATIONS IN AN AUDIT OF FINANCIAL STATEMENTS
It deals with the auditor’s responsibility to identify instances of non–compliance with laws and regulations having direct/indirect effect on the material amounts and disclosures in financials statements
However, auditor not primarily responsible for non-compliance as well as non-detection as the same rests on the Management and TCWG
SA 300: PLANNING AN AUDIT OF FINANCIAL STATEMENTS
Initial Audit Engagements-Acceptance (SA 220) and communication with previous auditor
Recurring Audit Engagement- Planning Activities
SA 500: AUDIT EVIDENCE
It explains what constitutes audit evidence in an audit of financial statements, and
It deals with the auditor’s responsibility to design and perform audit procedures viz. inspection, observation, inquiry, recalculation, analytical procedures, reperformance, to obtain sufficient appropriate audit evidence to draw reasonable conclusions so as to enable him to express an opinion

15. Brief Introduction to SA’s & other relevant standards
SA 500: AUDIT EVIDENCE
It explains what constitutes audit evidence in an audit of financial statements, and
It deals with the auditor’s responsibility to design and perform audit procedures viz. inspection, observation, inquiry, recalculation, analytical procedures, re-performance, to obtain sufficient appropriate audit evidence to draw reasonable conclusions so as to enable him to express an opinion
SA 501: AUDIT EVIDENCE—SPECIFIC CONSIDERATIONS FOR SELECTED ITEMS
It deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence in accordance with SA 230, SA 500 (Revised) and other relevant SAs, with respect to certain aspects of inventory, litigation and claims involving the entity, and segment information in an audit of financial statements
SA 505: EXTERNAL CONFIRMATIONS
This Standard on Auditing (SA) deals with the auditor’s use of external confirmation procedures to obtain audit evidence in accordance with the requirements of SA 330 and SA 500 (Revised).
SA 510: INITIAL AUDIT ENGAGEMENTS—OPENING BALANCES
This Standard on Auditing (SA) deals with the auditor’s responsibilities relating to opening balances when conducting an initial audit engagement

16. Brief Introduction to SA’s & other relevant standards
SA 550: RELATED PARTIES
This Standard on Auditing (SA) deals with the auditor’s responsibilities regarding related party relationships and transactions when performing an audit of financial statements.
Related Parties as per SA 550:
person or other entity that has control or significant influence, directly or indirectly over the reporting entity
Another entity over which the reporting entity has control or significant influence, directly or indirectly
entity under common control with the reporting entity
Related Parties as per 40A(2):
relative of the assessee
director of company or partner of the firm, member of association of persons or Hindu undivided family or partner of firm, or any relative of such director, partner or member
individual who has a substantial interest in the business or any relative of such individual
company, firm, association of persons or Hindu undivided family having a substantial interest in the business or its director, partner or member or its relative
a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or its director, partner or member or its relative

17. Brief Introduction to SA’s & other relevant standards
SA 560: SUBSEQUENT EVENTS
It deals with the auditor’s responsibilities relating to effect of subsequent events on financial statements and auditor’s report
SA 570: GOING CONCERN
It deals with the auditor’s responsibility in the audit of financial statements with respect to management’s use of the going concern assumption in the preparation and presentation of the financial statements
Conditions that may cast doubt about the assumption:
Net current liability position
Negative operating cash flows
Substantial operating losses
Inability to comply with the terms of loan agreements
Loss of key management without replacement.
Loss of a major market, key customer(s)
Changes in law or government policy expected to adversely affect the entity

18. Brief Introduction to SA’s & other relevant standards
SA 580: WRITTEN REPRESENTATIONS
It deals with the auditor’s responsibility to obtain written representations from management and, where appropriate, those charged with governance
SA 700: FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS
Objective: expressing clearly an opinion (including basis thereof) through a written report
It also deals with the form and content of the auditor’s report issued as a result of an audit of financial statements

19. Brief Introduction to SA’s & other relevant standards
SA 705: MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT
This Standard on Auditing (SA) deals with the auditor’s responsibility to issue an appropriate report in circumstances when, in forming an opinion in accordance with SA 700 (Revised), the auditor concludes that a modification to the auditor’s opinion on the financial statements is necessary
Determination of type of modification
Nature of Matter
Effect-Material but not pervasive
Effect-Material and pervasive
Financial statements are materially misstated
Qualified Opinion
Adverse Opinion
Inability to obtain sufficient appropriate audit evidence
Disclaimer of Opinion

20. Brief Introduction to SA’s & other relevant standards
SA 706: EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITOR’S REPORT
It deals with the auditor’s responsibility to draw user’s attention to important matters whether or not disclosed in the financial statements by making a specific reference in the auditor’s report through “Emphasis of matter” para and “Other Matter” para.
SA 710: COMPARATIVE INFORMATION— CORRESPONDING FIGURES AND COMPARATIVE FINANCIAL STATEMENTS
It deals with the auditor’s responsibilities regarding comparative information in an audit of financial statements.
If the prior period financial statements were not audited, the auditor shall state in the auditor’s report that the corresponding figures are unaudited

21. Brief Introduction to SA’s & other relevant standards
SQC 1: QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS OF HISTORICAL FINANCIAL INFORMATION, AND OTHER ASSURANCE AND RELATED SERVICES ENGAGEMENTS
The purpose of this Standard on Quality Control (SQC) is to establish standards and provide guidance regarding a firm’s responsibilities for its system of quality control for audits and reviews of historical financial information, and for other assurance and related services engagements. This SQC is to be read in conjunction with the requirements of the Chartered Accountants Act, 1949, the Code of Ethics and other relevant pronouncements of the Institute

22. Clauses 1 to 12, 28 to 32

23. Annexure to Tax Audit Report (Form - 3CD)
Clauses 1-6:
Name of the assessee
Address
Permanent Account Number
Status
Previous Year Ended
Assessment Year
Importance of PAN records in all the above clauses.

24. Annexure to Tax Audit Report (Form - 3CD)
Clause 7:
Is applicable to Firms & Association of Persons
Names of partners / members & their profit-sharing ratios [Sub- Clause (a)]
Changes in the constitution, or profit-sharing, of Partnership / Association & the particulars of change [Sub-Clause (b)]
Clause 7: Relevant Issues
Will change in remuneration paid to partners without change in profit-sharing ratio would require any disclosure in tax audit report?
When partner in representative capacity retires & admitted as partner in individual capacity, will it amount to change in partnership?

25. Annexure to Tax Audit Report (Form - 3CD)
Clause 8:
Nature of Business / Profession (If more than one business / profession is carried out, then nature of every business / profession) [Sub-Clause (a)]
Particulars of change in business / profession [Sub-Clause (b)]

26. Annexure to Tax Audit Report (Form - 3CD)
Clause 8: Relevant Issues
If assessee starts another business whose gross receipts are not material compared to existing business, would it still amount to change in business?
If assessee manufactures certain products & also sells certain components which are used in manufacture of product, would he be categorized as trader or manufacturer?
If nature of business covers vast no. of activities, is it sufficient for TA to obtain management representations?

27. Annexure to Tax Audit Report (Form - 3CD)
Clause 9:
Whether books of accounts are prescribed as per S. 44AA? [Sub-Clause (a)]
Books of Accounts maintained (In case of computerized system of accounting, mention books of account generated by such system) [Sub-Clause (b)]
List of books examined [Sub-Clause (c)]

28. Annexure to Tax Audit Report (Form - 3CD)
Clause 9: Relevant Issues
Where stock records are not maintained due to high volume of transactions, what is TA’s stand?
Would post audit print-outs of accounts prepared be sufficient evidence of audit without audit ticks?
Clause 10:
Mention profit assessable on presumptive basis which is included in profit & loss account and relevant section under which it is assessable

29. Annexure to Tax Audit Report (Form - 3CD)
Clause 11:
Method of Accounting followed in P.Y [Sub-Clause (a)]
Any change in method of accounting in relation to last P.Y [Sub-Clause (b)]
Details of such change and its effect on profit / loss [Sub-Clause (c)]
Details of deviation in method employed from accounting standards prescribed u/s. 145 & effect on profit / loss [Sub-Clause (d)]
Relevant Issues
Does change in accounting policy amount to change in ‘method of accounting’?
If preceding P.Y’s accounts were not subject to tax audit, is it sufficient to rely only upon information & explanations provided by client?

30. Annexure to Tax Audit Report (Form - 3CD)
Clause 12:
Method of Valuation of Closing Inventory employed in P.Y [Sub-Clause (a)]
Details of deviation of such method of valuation from method prescribed u/s. 145A & effect on profit / loss [Sub-Clause (b)]
What is objective behind S. 145A?
Whether there is any effect on Profit & Loss Account by adopting ‘Inclusive Method’ as per S. 145A ?

31. Annexure to Tax Audit Report (Form - 3CD)
Clause 12: Relevant Issues
Where closing inventories are valued at market price (being lower than cost), should excise duty be added to such amount for complying with S. 145A?

32. Annexure to Tax Audit Report (Form - 3CD)
Clause 22:
Amount of CENVAT Credit utilized during P.Y. & treatment in profit / loss account & treatment of CENVAT Credit outstanding [Sub-Clause (a)]
Particulars of prior period Income / Expenditure credited / debited to Profit / Loss Account [Sub-Clause (b)]

33. Annexure to Tax Audit Report (Form - 3CD)
Clause 22: Relevant Issues
CENVAT Credit
Where CENVAT Credit as per assessees books is reconciled with Credit as per Excise Department, which entries are to be considered under this clause?
Prior-Period Items
Where particular item is considered as prior period item by TA but not by statutory auditor, what is TA’s duty in this respect?
How should sales tax refund determined as result of order passed in last month of preceding P.Y but received in current P.Y, be treated?
How should claim made for short supply of RM in preceding P.Y, settled in this P.Y, be treated?
Wage disputes started in preceding P.Y but settled in current P.Y-Whether increase in wages pertaining to earlier P.Ys paid in current P.Y should be disclosed as prior period item?

34. Annexure to Tax Audit Report (Form - 3CD)
Clause 23:
Amount borrowed on hundi (including interest thereon) repaid other than through account payee cheque (section 69D)
Clause 24:
Particulars of each loan / deposit exceeding limits specified u/s. 269SS taken or accepted during P.Y-
Name, address & PAN of lender / depositor
Amount of loan / deposit
Whether loan / deposit was squared up during P.Y
Maximum amount outstanding at any time in P.Y
Whether loan / deposit was taken / accepted otherwise than by account payee cheque or account payee bank draft [Sub-Clause (a)]

35. Annexure to Tax Audit Report (Form - 3CD)
Clause 24:
Particulars of loan / deposit repaid exceeding limits specified u/s. 269T during P.Y-
Name, address & PAN of payee
Amount of repayment
Maximum amount outstanding at any time during P.Y
Whether repayment was made otherwise than by account payee cheque or account payee bank draft [Sub-Clause (b)]
Whether certificate has been obtained from assessee regarding taking or accepting, or repayment of same through account payee cheque / draft [Sub-Clause (c)]
Such particulars are not necessary in case of government companies, banking companies or corporations established under Central, State or Provincial Act

36. Annexure to Tax Audit Report (Form - 3CD)
Clause 24: Relevant Issues
What are reporting requirements in case where deposit is received along with interest by other than account payee cheque or draft?
Where current account is maintained for sister concern in respect of purchase of goods, cheque received, etc., how should same be approached by TA?
What is treatment of booking amount received against sale of goods?
Where asset is purchased under hire purchase finance, payment for which is made by account payee cheque by financier to supplier, is such loan taken by assessee in infringement of S. 269SS?
Does S. 269SS include loans from finance companies & co-operative banks?

37. Annexure to Tax Audit Report (Form - 3CD)
Clause 24: Relevant Issues
Where payment to creditor is made by sister concern of assessee, will same be required to be reported under this clause?
Where repayment of loan is made by crossed cheque to creditor of assessees lender, will same be covered under this clause?
Where in loan account there is no transaction apart from interest to be paid & TDS on such interest due, should same be reported under this clause?
Where creditors for supplies are converted into unsecured loans, what are reporting requirements?
Current account loans taken & repaid on different dates during P.Y, should same be disclosed in respect of each credit entry under this clause?

38. Annexure to Tax Audit Report (Form - 3CD)
Clause 24: Relevant Issues
Where assessee makes payments of LIC Premium or Advance Tax on behalf of its depositors in account payee cheque of amounts exceeding limits specified in S. 296T, would same be required to be disclosed?
What is position if transfer entries are made in books as authorized by letter of depositor?
Opening balance of loan account is Rs. 1 lakh & only Rs. 10,000 has been accepted during P.Y, should same be reported?
Opening balance of loan account is Rs. 1 lakh & there absolutely no movement in account either by way of further acceptance / repayment or interest during P.Y, should same be reported?
Is any comment required from TA in respect of contravention of provisions of Ss. 69D, 269SS & 269T?

39. Annexure to Tax Audit Report (Form - 3CD)
Clause 25:
Details of brought forward loss or depreciation allowance, in following manner [Sub-Clause (a)]-
Where change in shareholding of company has taken place in P.Y due to which losses incurred in preceding P.Ys cannot be carried forward as per S. 79 [Sub-Clause (b)]
Serial No
Assessment Year
Nature of Loss / Allowance (in Rs.)
Amount as returned (in Rs.)
Amount as assessed (give reference to relevant order)
Remarks

40. Annexure to Tax Audit Report (Form - 3CD)
Clause 28:
In case of trading concern, quantitative details of principal goods traded-
Opening Stock
Purchases during P.Y
Sales during P.Y
Closing Stock
Short / Excess [Sub-Clause (a)]
In case of manufacturing concern, quantitative details of raw materials, finished goods & / or by-products-
Consumption / Production during P.Y
Short / Excess

41. Annexure to Tax Audit Report (Form - 3CD)
Clause 28:
Yield of finished products *
Percentage of yield *[Sub-Clause (b)]
*Information may be given to the extent available; applies to raw materials only

42. Annexure to Tax Audit Report (Form - 3CD)
Clause 28: Relevant Issues
How must quantitative details be disclosed in case of retail traders where there are variety of items traded?
Will TA be justified in conducting his audit in proper manner if he accepts MRs regarding quantitative details of items, in case there is no mechanism to record stock?
How should TA report in case of civil contractor or construction company under this clause?
Where assessee was not valuing work-in-progress because processing time was minimal, how should TA report this issue under this clause?
In case where units of raw materials & closing stock are not same, how should yield & shortage / excess of stock be measured?
Are assessees rendering technical services required to maintain quantitative details of drawing materials like tracing papers, etc?

43. Annexure to Tax Audit Report (Form - 3CD)
Clause 29:
In case of domestic company , details of tax on distributed profits u/s. 115-O in following form-
Total amount of distributed profits [Sub-Clause (a)]
Total tax paid thereon [Sub-Clause (b)]
Dates of payment with amounts [Sub-Clause (c)]
Relevant Issues
Where tax audit is completed after dividend is declared but before dividend distribution tax is paid, will it be sufficient compliance to report on dividend declared in preceding P.Y but paid in current P.Y?

44. Annexure to Tax Audit Report (Form - 3CD)
Clause 30:
Enclose a copy of Cost Audit Report, if any
Clause 31:
Enclose a copy of Excise Audit Report, if any
Clause 32:
Calculate following ratios:
Gross Profit / Turnover
Net Profit / Turnover
Stock-in-trade / Turnover
Material Consumed / Finished Goods Produced