AUDIT, TAX AUDIT & 10B AUDIT

1. INTRODUCTION

Audit is a systematic examination of financial records, statements, accounts, documents, and operations to ensure accuracy, transparency, and compliance with applicable laws. Every business or non-profit organization must conduct audits to maintain credibility and meet statutory requirements.

2. TYPES OF AUDITS COVERED

This note includes three important audits:

1. Statutory Audit (General Audit)
2. Tax Audit (u/s 44AB of Income Tax Act)
3. 10B Audit (Audit Report in Form 10B for Trusts/NGOs)

3. STATUTORY AUDIT (GENERAL AUDIT)

3.1 Meaning

A statutory audit is a mandatory audit conducted under the applicable law (Companies Act, Societies Act, Trust Act, State NGO laws). It ensures that financial statements present a true and fair view of the organization’s financial position.

3.2 Who Needs Statutory Audit?

• Company (Private/Public)
• Section 8 Company
• Societies / Associations
• Trusts / NGOs
• Co-operative Societies
• Other legally registered institutions

3.3 Purpose

• Verify financial records
• Ensure compliance with legal requirements
• Detect errors/frauds
• Improve financial transparency
• Enhance donor, government & stakeholder trust

3.4 Documents Required

• Books of accounts
• Vouchers, receipts, bills
• Bank statements & passbooks
• Fixed asset register
• Minutes of meetings
• Previous audit reports

4. TAX AUDIT (SECTION 44AB OF INCOME TAX ACT)

4.1 Meaning

Tax Audit refers to examining and reporting the correctness of books of accounts under Section 44AB of the Income Tax Act. The auditor furnishes a Tax Audit Report in Form 3CA / 3CB and Form 3CD.

4.2 Who Needs Tax Audit?

A. Business

• Turnover exceeds ₹1 Crore (₹10 Crore where 95% transactions are digital)

B. Profession

• If gross receipts exceed ₹50 Lakhs

C. Presumptive Taxation Cases

• Section 44AD, 44AE, 44ADA : Tax audit required if declared income is less than prescribed limits.

4.3 Purpose

• To Ensure correct reporting of income
• To Verify compliance with Income Tax provisions
• To Reduce fraudulent reporting
• To Assist in accurate tax computation

4.4 Documents Required

• Profit & Loss Account
• Balance Sheet
• Ledger accounts
• GST returns (for cross-verification)
• Bank statements
• List of fixed assets
• Loan details
• TDS details

4.5 Due Date (Generally)

• 30th September(for most taxpayers)
• 31st October (if transfer pricing applies)

5. 10B AUDIT (FOR TRUSTS & CHARITABLE INSTITUTIONS)

5.1 Meaning

Form 10B is the audit report required under the Income Tax Act for charitable and religious institutions registered under Section 12A / 12AB or claiming exemption under Sections 11 & 12.It is mandatory when the income of the trust exceeds the basic exemption limit.

5.2 Who Needs Form 10B Audit?

• Charitable & Religious Trusts
• Societies / NGOs
• Section 8 Companies
• Institutions registered under Section 12A / 12AB

(Note: Small trusts below exemption limit may use Form 10BB instead of 10B depending on requirements.)

5.3 Purpose

• To ensure income is applied only for charitable objects
• To check compliance under Section 11, 12, 12A, 12AB
• To verify donations, grants, and utilization
• To certify proper maintenance of records and accounts

5.4 Documents Required

• Books of accounts
• Receipts & Payment Account
• Income & Expenditure Account
• Balance Sheet
• Bank Statements
• Salary / expense records
• Details of donations, grants, FC funds (if any)
• Activity report of the organization

5.5 Key Audit Areas

• Application of income (85% rule)
• Accumulation of income (Section 11(2))
• Compliance with objectives
• Verification of donations & corpus funds
• Capital expenditure for charitable purposes
• Related party transactions

5.6 Due Date

• 30th September (along with ITR-7 filing)

6. Difference Between Statutory Audit, Tax Audit & 10B Audit

7. Importance of These Audits

• Ensures legal & financial compliance
• Builds credibility with donors, banks & government
• Improves transparency & accountability
• Prevents mismanagement & fraud
• Helps proper tax planning
• Enables exemption benefits (for NGOs)

8. Conclusion

Audit, Tax Audit, and 10B Audit are essential components of financial governance for businesses, NGOs, and charitable institutions. Proper and timely audit not only ensures compliance with statutory laws but also enhances credibility, financial discipline, and long-term sustainability.