Audit firms are writing audit reports with a judgemental attitude and not with a productive attitude. The relationship between the audit firm and the company is a positive one. Companies need to understand the law behind audit firm appointments. Audit firm rotation is mandatory in India. Every five years, the audit firm’s relationship with the company changes. Audit firms work for a tenure of five years. Pakistan, Spain, Italy, Peru, Iceland, Brazil, China, Australia, Finland, Denmark, Germany, Greece Singapore, Malaysia, the UK and the United States follow the system of audit firm and audit partner rotation. As audit firms work on a rotational basis, companies need to check the quality of audit firms before choosing them. The audit proposal consists of information such as the industrial experience, unique audit approach, and fee collection. The other common questions like the time taken, additional fees, professional satisfaction, and responsiveness to doubts are experienced through teamwork with the audit firms. The blog engages the readers with valuable insights about choosing an audit firm. Let us, deep dive, into the audit firm’s infrastructure and processes.
Budget for audit:
The competition among the audit firms is fierce, which decides the cost of the audit. Auditors do document and physical verification. So, it takes time to complete the audit process. Auditors check assets, liabilities, and internal, and operating systems. The cost of an audit in India ranges from 25,000 to 5 lakh. Big Four firms charge 1000 to 1200 per hour as an audit fee. The total fee of the big four firms would be 1.4 crores per audit. The details of fee collection of the top big four audit firms are Deloitte group with 303.2, KPMG with 99.4 crores, EY group at 121.2 crores, and PWC with 65.6 crores.
Data analytics, blockchain and artificial intelligence are used in the auditing and accounting sector. Data analysis help for doing risk management and understanding competitive strategies. With the help of data analytics, the auditors get two types of views. The two views are helicopter and detailed view. Internal control is possible with the available data from different departments. For instance, the auditing wants to correct the labour time and distribution cycle. It is implemented after checking the department data. Auditing is now using the continuous transaction monitoring system. Previously audit firms use the audit process of continuous control monitoring.
Continuous transactional monitoring supports the process of internal, and external reports. The regulatory changes, risk management, and cost of compliances are the frequent changes that are possible with the continuous transaction monitoring system. This will benefit the organisations. This system will reduce the cost and minimise the risk factor. Auditors need to understand the latest technology to create support services for the auditing process.
The reputation of audit firms:
Investors pay millions of money after viewing the auditor’s report. If there is litigation in the audit report, the cost increases for the company. To grab the investment and reduce the cost of litigation, audit quality is an essential factor.
Audit firms work as the following models: Practice individually, practice as a sole proprietary firm, practice as a limited liability firm, network firms, and merger of firms. These models are recognised by ICAI for their professional services. Network firms operate in different locations, and it is a growth-oriented one. Small firms get empanelment through the ICAI-PDC process. Network firms take on foreign projects and services for international clients. The Indian government commits to improving the auditing business and exporting audit services. The documents that the auditor prepares educate the outsiders about the following values: interim financial information, audit statements and audit of the internal system. Section 139(6) states that auditors are appointed by the board of directors after the registration of the companies. The appointment is after thirty days of registration. The auditors continue their service for five years or till the next AGM.
Powers and duties of auditors:
- Auditors check the books and vouchers of the company. They have access to the accounts books.
- Auditors check the secured loans. They also analyse that the terms of the loans support the interest and goal of the company.
- They check the sale value of the securities, shares and debentures. The sale value should match the profit of the company. If the asset is sold at a less price, it is analysed.
- Check the details of loans and advances.
- Check that the revenue account does not contain personal expenses.
- Auditors check the company maintains the books as prescribed by the law.
- Check the match between books of accounts and the balance sheet.
- Check the accounting standards.
- Check the disqualification of the directors.
- Check the previous auditor’s report and adverse comments.
Difference between tax audit and GST audit:
Companies with more than one crore turnover do the Tax audit. GST audit is for companies with more than two crores of turnover. A tax audit is to check the income, expenses, and financial transactions. The tax audit checks that the total tax amount has been calculated fairly. GST audit checks the books of accounts, reverse charge taxes, interest on late payment of tax, reversal of tax credit for non-payment of tax, E-way bill, GST audit turnover and income tax audit turnover, GSTTIN wise audit, and stock transfer.
The audit firm’s fee and the performance are known with the audit proposal. All public companies need to match the international standard on auditing and GAAP. If the sales and turnover exceed one crore for the financial year, the company need to do a tax audit. The maximum number of tax audit ceilings specified by ICAI for the financial year- 2021 to 2022 is sixty. The above tips will help the companies understand the specifications of the auditing services.