Tax Audit Checklist

1. Corporate Governance

2. Peer Review

3. Return of Deposits Checklist

4. Tax Audit Checklist

Additional Checklists

I. CORPORATE GOVERNANCE

1. Whether the criteria for applicability have been verified? The criteria being:

• Applicable to all the listed companies with paid-up capital of Rs.3 crores andabove or net worth of Rs.25 crores or more at any time in the history of thecompany.

• Not applicable to the mutual fund scheme.

2. Whether the company has submitted a quarterly compliance report to the stockexchanges within 15 days from the end of the quarter?

3. Whether the compliance in relation to the Board of Directors has been verified that:

• Board of directors of the company should comprise not less than fifty per cent ofnon-executive directors

• The number of independent directors depends on whether the Chairman isexecutive or non-executive Chairman.

• At least one-third of board should comprise of independent directors in case ofnon-executive Chairman.

• At least half of the board should comprise of independent directors in case ofexecutive Chairman.

• In case of non-executive directors’ compensation whether the auditor has verifiedthat all compensation paid to non-executive directors has been fixed by the Boardof Directors and approved by shareholders in general meeting

4. Have you verified that the Board meetings were held at least four times a year andthat the time gap should not be more than four months between two meetings?

5. Have you verified that any particular director has not acted as Chairman of more thanfive committees in which he is a director?

6. Have you verified that any particular director is not a member in more than 10committees in which he is a director, three committees to be considered for thispurpose being Audit Committee, Shareholders Grievance Committee and theRemuneration Committee?

7. Have you verified that the Board of Directors has prepared the Code of Conduct for allboard members and senior management of the company and also whether the samehas been posted on the website?

8. Have you verified that all board members and senior management on an annual basishave given compliance to the Code of Conduct?

9. Whether all members of Audit Committee are financially literate and at least one ofthem has accounting or related financial management expertise (both terms have beenexplained in Clause 49) Two third of members should be Independent Directors.


CHAPTER IX

Audit Checklist – For Companies204


10. Have you verified whether all committees – Remuneration, Audit and GrievanceCommittees – have been constituted as per the requirements of the Clause 49?

11. Whether the Quarterly Results, Presentation made by companies to analysts havebeen put on company’s website?

12. Have you verified whether the following matters are included in the Directors Report onCorporate Governance?

(a) A brief statement on company’s philosophy on code of governance.

(b) Board of Directors

— Composition and category of directors for example promoter, executive,non-executive, independent non-executive, nominee director, whichinstitution represented as Lender or as equity investor

— Attendance of each director at the BoD meetings and the last AGM

— Number of other BoDs or Board Committees he/she is a member orChairperson of

— Number of BoD meetings held, dates on which held

(c) Audit Committee

— Brief description of terms of reference

— Composition, name of members and Chairperson

— Meetings and attendance during the year

(d) Remuneration Committee

— Brief description of terms of reference

— Composition, name of members and Chairperson

— Attendance during the year

— Remuneration policy

— Details of remuneration to all the directors, as per format in main report.

(e) Shareholders Committee

— Name of non-executive director heading the committee

— Name and designation of compliance officer

— Number of shareholders complaints received so far

— Number not solved to the satisfaction of shareholders

— Number of pending share transfers

(f) General Body meetings

— Location and time, where last three AGMs held

— Whether special resolutions passed in the previous 3 AGMs

Audit Checklist – For Companies 205


— Whether any special resolution passed last year through postal ballot –details of voting pattern

— Person who conducted the postal ballot exercise

— Whether any special resolution is proposed to be conducted through postalballot

— Procedure for postal ballot

(g) Disclosures

— Disclosures on materially significant related party transactions; i.e.,transactions of the company of material nature, with its promoters, thedirectors or the management, their subsidiaries or relatives etc. that mayhave potential conflict with the interests of company at large.

— Details of non-compliance by the company, penalties, strictures imposed onthe company by Stock Exchange or SEBI or any statutory authority, on anymatter related to capital markets, during the last three years.

— Disclosure of accounting treatment, if different, from that prescribed in ASswith explanation.

— Whistle Blower policy and affirmation that no personnel has been deniedaccess to the audit committee

(h) Means of communication

— Half-yearly report sent to each household of shareholders

— Quarterly results

— Which newspapers normally published in

— Any website, where displayed

— Whether it also displays official news releases

— The presentations made to institutional investors or to the analysts.

— Whether Management Discussion and Analysis is a part of annual report ornot.

(i) General Shareholder information

— AGM : Date, time and venue

— Financial Calendar

— Date of Book closure

— Dividend Payment Date

— Listing on Stock Exchanges

— Stock Code

— Market Price Data : High, Low during each month in last financial year



— Performance in comparison to broad-based indices such as BSE Sensex,CRISIL index etc.

— Registrar and Transfer Agents

— Share Transfer System

— Distribution of shareholding

— Dematerialization of shares and liquidity

— Outstanding GDRs/ADRs/Warrants or any Convertible instruments,conversion date and likely impact on equity

— Plant Locations

— Address for correspondence

Annexure I A

Format of Quarterly Compliance Report on Corporate Governance

Name of the Company:

Quarter ending on:

Particulars Clause of Compliance RemarksListing Status

Agreement Yes/No

1 2 3 4

I. Board of Directors 49 I

(A) Composition of Board 49 (IA)

(B) Non-executive Directors’compensation & disclosures 49 (IB)

(C) Other provisions as toBoard & Committees 49 (IC)

(D) Code of Conduct 49 (ID)

II. Audit Committee 49 (II)

(A) Qualified & Independent Audit Committee 49 (IIA)

(B) Meeting of Audit Committee

(C) Powers of Audit Committee 49(IIC) 49 (IIB)

(D) Role of Audit Committee 49 (IID)

(E) Review of Information by Audit Committee 49 (IIE)

III. Subsidiary Companies 49 (III)



1 2 3 4

IV. Disclosures 49 (IV)

(A) Basis of related party transactions 49 (IVA)

(B) Disclosure of Accounting Treatment 49 (IVB)

(C) Board Disclosures 49 (IVC)

(D) Proceeds from Initial Public issues, rightsissues, preferential issues etc 49 (IVD)

(E) Remuneration of Directors 49 (IVE)

(F) Management 49 (IVF)

(G) Shareholders 49 (IVG)

V. CEO/CFO Certification

VI. Report on Corporate Governance 49 (V)

VII. Compliance 49 (VII)

Note:

1) The details under each head shall be provided to incorporate all the information required asper the provisions of the clause 49 of the Listing Agreement.

2) In the column No. 3, compliance or non-compliance may be indicated by Yes/No/N.A.. Forexample, if the Board has been composed in accordance with the clause 49 I of the ListingAgreement, “Yes” may be indicated. Similarly, in case the company has not come out withan IPO, the words “N.A.” may be indicated against 49 (VIIC).

3) In the remarks column, reasons for non-compliance may be indicated, for example, in caseof requirement related to circulation of information to the shareholders, which would be doneonly in the AGM/EGM, it might be indicated in the “Remarks” column as – “will be compliedwith at the AGM”. Similarly, in respect of matters which can be complied with only where thesituation arises, for example, “Report on Corporate Governance” is to be a part of AnnualReport only, the words “will be complied in the next Annual Report” may be indicated.

Non-Mandatory Requirements

1. Chairman of the Board

A non-executive Chairman should be entitled to maintain a Chairman’s office at thecompany’s expense and also allowed reimbursement of expenses incurred in performanceof his duties.

2. Remuneration Committee

(i) The board should set up a Remuneration Committee to determine on their behalf andon behalf of the shareholders with agreed terms of reference, the company’s policy onspecific remuneration packages for executive directors including pension rights and anycompensation payment.



(ii) To avoid conflicts of interest, the Remuneration Committee, which would determine theremuneration packages of the executive directors should comprise of at least threedirectors, all of whom should be non-executive directors, the chairman of committeebeing an independent director.

(iii) All the members of the Remuneration Committee should be present at the meeting.

(iv) The Chairman of the Remuneration Committee should be present at the AnnualGeneral Meeting, to answer the shareholder queries. However, it would be up to theChairman to decide who should answer the queries.

3. Shareholder rights

The half-yearly declaration of financial performance including summary of the significantevents in last six months, should be sent to each household of shareholders.

4. Postal Ballot

Currently, though there is requirement for holding the general meeting of shareholders, inactual practice only a small fraction of the shareholders of that company do or can reallyparticipate therein. This virtually makes the concept of corporate democracy illusory. It isimperative that this situation which has lasted too long needs an early correction. In thiscontext, for shareholders who are unable to attend the meetings, there should be arequirement which will enable them to vote by postal ballot for key decisions. Some of thecritical matters which should be decided by postal ballot are given below:

(i) Matters relating to alteration in the memorandum of association of the company likechanges in name, objects, address of registered office etc;

(ii) Sale of whole or substantially the whole of the undertaking;

a. Sale of investments in the companies, where the shareholding or the voting rightsof the company exceeds 25%;

b. Making a further issue of shares through preferential allotment or privateplacement basis;

c. Corporate restructuring;

d. Entering a new business area not germane to the existing business of thecompany;

e. Variation in rights attached to class of securities;

f. Matters relating to change in management.

5. Audit qualifications

Company may move towards a regime of unqualified financial statements.

6. Training of Board Members

Company shall train its Board members in the business model of the company as well asthe risk profile of the business parameters of the company, their responsibilities as directors,and the best ways to discharge them.

7. Mechanism for evaluating non-executive Board Members

The performance evaluation of non-executive directors should be done by a peer groupcomprising the entire Board of Directors, excluding the director being evaluated; and PeerGroup evaluation should be the mechanism to determine whether to extend/continue theterms of appointment of non-executive directors.

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II. PEER REVIEW CHECKLIST FOR THE AUDITOR

(REFERRED TO AS PRACTICE UNIT)

1. The peer review excludes:

i. Management consulting engagements;

ii. Representing a client before the authorities;

iii. Engagement to prepare tax returns or advising clients in taxation matters;

iv. Engagement for the compilation of financial statements;

v. Engagement solely to assist the client in preparing, compiling or collating informationother than financial statements;

vi. Testifying as expert witness; and

vii. Providing expert opinion on points of principle such as accounting standards or theapplicability of certain laws, on the basis of facts provided by the client.

Y/N/NA / Remarks

2. Whether the practice unit has ensured:

i. that while performing attestation services due compliance hasbeen made with the technical standards laid down by theInstitute?

ii. place proper system for maintaining the quality of attestationservices performed by him?

3. Whether the practice unit has adhered to various statutory and otherregulatory requirements?

4. Whether there has been enhancement on the reliance placed by theusers of financial statements for economic decision making?

5. Whether the general controls have been executed like independence,maintenance of professional skills & standards, outside consultations,staff supervision and development and office administration?

6. Whether the member has followed independent policies andprocedures as also communicated and monitored the same andperiodically reviewed the practice unit’s association with clients?

7. Whether the member has established plans for personnel needs -based on current and anticipated clients?

8. Whether the member has established recruitment policy, personnelpolicy and same have been communicated to new personnel?

9. Whether the member has any policy for outside consultation?

10. Whether the member has documented resolution of differences ofopinion?

11. Whether the member has written guidelines on responsibility,expected performance and qualifications for advancement of the staff?



Y/N/NA / Remarks

12. Whether there is a system of evaluating performance, system ofscheduling and staffing as also standardised forms, checklists,questionnaires?

13. Whether the member has established procedures for retention ofrecords such as clients’ name, nature of engagement,commencement of audit, date of audit report, billing etc.?

14. Whether the member has maintained staff register and proper librarycontaining relevant books and publications of the Institute?

15. Whether the member has organised and delegated field work tocompetent personnel?

16. Whether the member has given directions, supervision and review ofwork so as to be appropriate to the staff’s professional competence?

17. Whether the assistants have been informed about theirresponsibilities, and objectives of what they are doing and the use ofaudit programmes?

18. Whether the partners and managers closely control time spent byaudit team?

19. Whether the professional competence is commensurate withresponsibility allotted to the staff?

20. Whether there is new appointee orientation as also periodicperformance appraisals?

21. Whether the member has a system of continuous professionaldevelopment of its staff by access to libraries, internet, other sourcesof updated technical knowledge as well as designation of experts asavailable for consultation in area of expertise?

22. Whether the following Technical Standards have been complied with:

i. ASs issued by the ICAI;

ii. Statement on SAP and AAS issued by the ICAI;

iii. Framework for the preparation and presentation of financialstatements and statements on Standard Auditing Practices andGuidance Notes on Related Services issued by the ICAI;

iv. Statements issued by the Institute of Chartered Accountants ofIndia;

v. Compliance of the Guidance notes issued by the Institute ofChartered Accountants of India;

vi. Notifications/Directions issued by the Institute of CharteredAccountants of India including those of a self regulatory nature

vii. Compliance with the provisions of the various relevant statutesand/ or regulations which are applicable in the context of thespecific engagements being reviewed.



Y/N/NA / Remarks

23. Verify whether the permanent and current audit include following:

i. Appointment and the relevant resolution about appointment

ii. Terms of engagement

iii. Manner of determining audit fees

iv. System of book keeping

v. List of books of account maintained by the entity

vi. Particulars of the promoters, directors and their powers.

vii. Name of the persons writing books of account and otherauthorized officers

viii. Deed governing constitution such as Memorandum andArticles of Association, Partnership Deed

ix. Profit and loss account and balance sheet

x. Reports of branch auditor, summary of points of internalauditor and director

xi. Note on client’s business and its accounting system

xii. Analytical review procedures in order to:

(a) identify important areas of accounts according to theirsize

(b) highlight unusual or unexpected figures or relationshipsin accounts

(c) design audit tests which concentrates on important andunusual items

(d) obtain sufficient audit assurance to allow the reduction oreven elimination of detailed testing in some areas

xiii. Assessment of audit risk by using the professional judgmentand audit procedures to ensure that it is reduced to low level

xiv. Preliminary estimates of materiality for the audit

xv. Class of relevant accounting transactions, sample selectionand extent of checking

xvi. Compliance test to evaluate the reliability of key controls

xvii. Material weaknesses in the operation of key controlscommunicated to the management

xviii. Performance of analytical review procedures, substantive testto obtain sufficient appropriate audit evidence

xix. Letter of representation from the management on fundamentalaccounting assumption and disclosure in changes inaccounting policies having material effect;



Y/N/NA / Remarks

xx. Reservations made by branch auditor in the audit report havebeen dealt within the finalisation of accounts

xxi. Working papers contain adequate evidence to support theaudit opinion. Working papers include:

(a) Copies of the audit programme

(b) Particulars of audit test carried out

(c) Copies of the principle working papers

(d) Letter of representation from the management onfundamental accounting assumption and disclosure inchanges in accounting policies having material effect

(e) A letter of representation or copy, if addressed to theother auditors

xxii. Summary of work done, problems, important decisions andaudit conclusions

xxiii. Review by senior in charge of work of all assistants, auditprogramme followed and work performed as per time schedule

xxiv. Review of unadjusted errors to determine whether individualand aggregate effect is not material

xxv. Post balance sheet events

xxvi. Formulation of draft audit opinion

xxvii. Comparison of budgeted time to actual and reasons for majorvariations

xxviii. Complete staff evaluation forms

24. Whether the practice unit on being selected has made arrangementsto fulfil the following obligations:

i. To provide access or make available records or documentsconsidered relevant within reasonable time at one place;

ii. To provide explanation or further particulars;

iii. To provide all assistance and information in legible form;

iv. Has maintained certain records that represents the adequacy ofquality control policies and procedures followed by the practiceunit these records being recommendatory records like

(a) Profile of the practice unit

(b) Lists of clients

(c) Staff files

(d) Manual of policies and procedures or mandatory recordslike working papers?



III. RETURN OF DEPOSITS CHECKLIST

Client ___________________________________ Year ended 31st March, 200___

A. GENERAL

(1) The return is to be made under Rule 10 of the Companies (Acceptance of Deposits)Rules, 1975. Hence, knowledge of these rules and section 58-A of the Companies Act,1956 is necessary.

(2) The return is to be filed with the Registrar of Companies by a company to which theRules apply, viz. a non-banking non- financial company.

(3) The return is to be filed before 30 June of each year, giving particulars prescribed asof 31st March.

(4) The purpose of this checklist is to enable the auditor to certify the correctnessof the particulars required to be furnished in the Return and not on compliancewith section 58-A of the Companies Act, 1956 and the Rules.

B. VERIFICATION OF RETURN

PART 1 REMARKS

(1) This part deals with deposits referred to in Rule 3(2)(i); i.e., loansfrom shareholders, deposits guaranteed by director(s) of theCompany and deposit against unsecured debentures, and depositsfrom the public, Rule 3(2)(ii).

(2) Ensure that deposits outstanding at the end of the year (items 105and 155) include unclaimed deposits.

(3) Confirm that particulars of deposits outstanding at the end of theyear (items 105 and 155) agree with the Registrar of Deposits andthe balance in the General Ledger account.

(4) If the accounts of the Company have been audited before the dateof certification of the Return, verify particulars given in items 141,142, 191 and 192 with particulars of unclaimed deposits required tobe furnished in the Directors’ Report.

(5) If the accounts of the Company have not been audited before thedate of certification of the Return and if items 141, 142, 191 and192 are stated as “nil” obtain Management’s representation to thateffect.

(6) Debentures which are not secured by mortgage of moveableproperty or which are not convertible are not exempt and should betreated as “unsecured” debentures (even though they may besecured by a floating charge) and shown against item 111.



PART 2

(1) This part deals with particulars of “liquid assets” and advertisementinviting deposits or statement in lieu of advertisement. (Rule 4/4A).

(2) Confirm that the figure stated against item 210 includes “unclaimed”deposits (items 141, 142, 191 and 192).

(3) Physically verify securities held as liquid assets, and obtainconfirmation from the Management that these are free of anycharge or lien.

(4) If securities held as liquid assets have been deposited with bank,obtain particulars thereof from the bank along with a declaration tothe effect that securities are held free of any charge or lien.

(5) Verify the advertisement given by the Company published in anEnglish newspaper and a vernacular newspaper and indicate thedate(s) of publication thereof.

(6) Indicate the period of validity of the previous advertisement (i.e.,the one prior to the advertisement referred to in Item 5 above).The advertisement is valid up to the earliest of the following:

(a) 6 months from the date of closure of the financial year inwhich it was issued, (State Date) or

(b) until the date on which the Balance Sheet is laid before theshareholders in general meeting, (State Date) or

(c) where the AGM for any one year has not been held the latestday on which the meeting should have been held.

[The advertisement is valid from the date of its publication tothe earliest of (a), (b) and (c)].

PART 3

(1) This part deals with “exempt” deposits.

(2) Details furnished should be verified from the ledger or Cash Book.

(3) Where the financial year of the Company ends on 31st March,ensure that a reconciliation of the Secured and UnsecuredLoans shown in its Balance Sheet and the totals of items 110,160 and 320 is furnished.

REMARKS



MANAGER’S CERTIFICATE

(1) Verify particulars of paid-up capital and free reserves from thelatest accounts laid before the shareholders.

(2) Ensure that deferred revenue expenditure, intangible assets,miscellaneous expenditure not written off and accumulatedunprovided depreciation (refer to Notes to accounts and Auditors’Report) are deducted.

(3) If free reserves include any capital reserve, ensure that itrepresents realised capital profit.

(4) Ensure that the Return is duly signed by an authorised official ofthe Company and dated.

AUDITORS’ CERTIFICATE

(1) Prepare draft of the auditors’ certificate.

(2) Ensure that it is signed by a partner in his personal name onbehalf of the firm.

(3) Where the financial year of the Company ends on 31st Marchand the auditors’ report for the year under audit has notbeen signed as at the date of certification of the Returnensure that the fact that particulars furnished in Part 1 and 3are subject to audit is stated in the auditors’ certificate.

(1) Attach working papers, referenced and cross - referenced to thedraft of the Return and / or the above.

REMARKS

(2) Give details of the total time taken in certifying the Return. HOURS

Completed by : Reviewed by:Date : Date :



Part A

1. Name of the Assessee

2. Address

3. Permanent Account No.

4. Status

5. Previous Year Ended

6. Assessment Year

Part B

Clause Particulars of the Clause as per Form 3CD

7 (a) If firm or Association of Persons, indicate names of partners/members and theirprofit sharing ratios.

(b) If there is any change in the partners/members or their profit sharing ratios sincethe last date of preceding year, the particulars of such change

Verification Outline CWP Ref. Comments,if any

i. Verify Deed of Partnership for the names of thepartners and their profit sharing ratios.

ii. Verify the Partnership ratios from the Deed that wasfiled with returns of the year prior to PY under audit.Also verify the Form 3CD of that year.

iii. Correlate those ratios with that of the year underreport by checking the Deed relevant to the yearunder audit.

iv. Note and disclose change, if any.

Notes

Only share in profit to be disclosed; i.e., remuneration, ifany should not be disclosed in this clause.

IV. TAX AUDIT CHECKLIST (FORM 3CD)



Every change in the ratio should be disclosed.

Ratio for sharing losses, if different from the profit sharingratio, should also be disclosed.

Disclose both year’s ratios along with names in a tabularform.

Conclusion:


8 (a) Nature of business or profession. (if more than one business or profession is carriedon during the previous year, nature of every business or profession)

(b) If there is any change in the nature of business or profession the particulars of suchchange.


i. Obtain list of activities/principal lines of business fromclient and changes from previous year (if any) (i.e.,both new and discontinued businesses)

ii. Verify above with the financial statements of thecurrent year, board and general meeting minutes, andprevious years Return of Income.

iii. Identify and disclose new activities in pre-operativestage, even if no revenues are generated from thesame. For this purpose scrutinise accounts such ascapital w.i.p., pre-operative expenditure, interest costs,etc.

iv. Check if the client carries out more than one businessor profession during the previous year, even ifdiscontinued within the year.

v. Disclosure :

(a) Under broad heads viz., manufacturing, tradingservices and financial services,

(b) Nature of each business/profession should bedisclosed,

(c) Nature of product/services under each broadhead.

Conclusion:





9 a. Whether books of account are prescribed under Section 44AA? If yes, list of booksso prescribed.

b. Books of account maintained.

(In case books of account are maintained in a computer system, mention the booksof account generated by such computer system)

c. List of books of account examined


i. For persons carrying on legal, medical, engineering orarchitectural professions or the profession ofaccountancy or technical consultancy or interiordecoration or authorised representative or film artistthe following books are prescribed u/s 44AA:

a. cash book;

b. journal, if the accounts are maintained accordingto the mercantile system of accounting;

c. Ledger;

d. Carbon copies of bills; and

e. Original bills wherever issued to the person andreceipts in respect of expenditure incurred by theperson.

ii. Obtain list of books of account maintained by theassessee. If books of account maintained oncomputer then obtain certificate from softwaredeveloper/vendor for books of account generated bythe computer.

iii. Compare list of books maintained with previous year’sschedule.

Notes

Disclose only those books that are verified for thepurpose of expressing true and fair view on financialstatements.

MIS and other reports generated by the computer systemshould not be included.

Marks of identification should be affixed on each andevery book and document examined.

Lists of books maintained and examined will be commonunless not produced for audit thereby placing limitation onthe scope of our audit. Reason/note should be given forsuch difference.

Conclusion:




10 Whether the profit and loss account includes any profits and gains assessable onpresumptive basis, if yes, indicate the amount and the relevant section (44AD, 44AE,44AF, 44B, 44BB, 44BBA, 44BBB or any other relevant section)


Profit and gains assessable on presumptive basis wouldbe of the following businesses:

• Civil Construction

• Plying, hiring or leasing of goods carriages

• Retail business

• Shipping business in case of non-residents

• Business of exploration, etc. of mineral oils

• Operation of aircraft in case of non-residents

• Foreign companies engaged in the businessof civil construction, etc., in certain turnkey projects.

Scrutinise the income accounts for the nature of incometo ascertain whether the same would fall in any of theabove categories and the conditions/requirementsprescribed under the Income-tax Act, 1961 are satisfied/complied.

Conclusion:


11 (a) Method of accounting employed in the previous year.

(b) Whether there has been any change in the method of accounting employed vis-a-visthe method employed in the immediately preceding previous year.

(c) If answer to (b) above is in the affirmative, give details of such change, and theeffect thereof on the profit or loss.

(d) Details of deviation, if any, in the method of accounting employed in the previousyear from accounting standards prescribed u/s 145 and the effect thereof on theprofit or loss.




i. Verify Notes to Account for disclosure of significantaccounting policies.

ii. Compare with previous year’s tax audit report forbasis adopted.

iii. Scrutinise Notes to Accounts, Auditors’ report andCARO for change in method of accounting and thequantification thereof.

Notes

Presently, the standards prescribed under Section 145 ofthe Income-tax Act, 1961 are :

• Disclosure of accounting policies

• Prior period items

• Extraordinary items

• Changes in accounting policies

Differences if any, between above standards and thosecarried by ICAI need to be identified and effect thereofdisclosed.

A change in an accounting policy will not amount to achange in the method of accounting and hence suchchange in the accounting policy need not be mentionedunder sub-clause (b).

Conclusion:


12 (a) Method of valuation of closing stock employed in the previous year.

(b) Details of deviation, if any, from the method of valuation prescribed u/s 145A andthe effect thereof on the profit or loss.


i. Ensure disclosure is consistent with SignificantAccounting Policies under Notes to Accounts.

ii. Check that the following is included in the valuation ofstocks: tax, duty, cess or fee (by whatever namecalled).



iii. If the items mentioned in (ii) above are not included,then quantify the effect thereof on opening and closingstock valuation.

Note

The effect on the profit and loss account of deviation frommethod of valuation prescribed under Section 145Ashould be given individually on the opening and closingstocks. Both the effects should be disclosed separatelyand not netted off. In case of netting off, there should beproper disclosure.

Conclusion:

Particulars of the Clause as per Form 3CD

12A Give the following particulars of the capital asset converted into stock-in trade:—

a) Description of capital asset;

b) Date of acquisition;

c) Cost of acquisition;

d) Amount at which the asset is converted into stock-in-trade;


i. Verify whether the assessee has converted any capitalasset into stock in trade by scrutinising the Assetsaccounts,

ii. Obtain the list of assets converted into stock-in-trade,

iii. Verify the date of acquisition and cost of acquisitionwith the supporting documents

iv. Obtain the amount at which it is converted into stockin-trade

v. Disclosure:

• List of assets converted in stock-in-trade includingdescription,

• Date of acquisition of each asset,

• Cost of acquisition for each,




• Amount at which the capital asset is convertedinto Stock-in-trade.

Conclusion:

Particulars of the Clause as per Form 3CD

13 Amounts not credited to the profit and loss account, being:

13(a) The items falling within the scope of Section 28


i. Scrutinise liability and capital reserve accounts toascertain any amount in the nature of income.

ii. Scrutinise audit report and notes to accounts forcomments, if any, on deferment/non-accounting ofincome.

iii. Identify whether the business of the assessee enjoysthe benefit of any import licence, cash assistance forexports, claims for duty drawback, proforma credits,refunds, etc.

Note :

Verify whether income when (i) to (iii) above isaccrued, in accounts, if due. If not accounted, quantifyseparately.

iv. Review the items of financial statements, thatconsidering the propriety of transaction, would begenerating revenue but are provided free of cost or atsubsidised rates. Disclose such items separately andquantify the effect wherever possible.

v. Discuss with the management by making prima facieinquiry of any facilities or other benefits provided toothers out of gratis or otherwise.

Note:

Put appropriate disclaimer note on managementrepresentation about facilities provided for use by thecompany and not charged for or services subsidised.

Conclusion:





13(b) The proforma credits, drawbacks, refunds of duty of customs or excise, or refunds ofsales tax or value added tax, where such credits, drawback, refunds are admitted asdue by the authorities concerned


i. Discuss with the management for any of the aboveclaims admitted as due by the authorities concernedat the year end.

ii. Verify whether the above claims have been credited tothe profit and loss account and, if not, obtain reasons.

iii. Scrutinise subsequent receipts of customs or exciserefunds, drawbacks, refund of sales tax or VAT.Ascertain when these claims were admitted as due bythe authorities concerned.

iv. Verify recent sales tax/VAT assessment orders todetermine whether any refund is due. Also considerverifying the VAT audit report.

v. Cross check with notes to accounts and qualificationsin auditors, report for such credits.

Conclusion:


13(c) Escalation claims accepted during the previous year


i. Check the accounting policy followed for accountingfor escalation claims as also any adverse commentsin auditors’ report/ notes for non-accounting of claims.

Conclusion:




13(d) Any other item of income


i. Scrutinise the notes to account and auditors’ report forany undisclosed/unaccounted revenue/income. (Referitems listed in Section 2(24).

Conclusion:


13(e) Capital receipts, if any.


i. Review items representing credits in the nature ofcapital receipt particularly those credited to capitalreserve.

ii. Check whether any of these could be credited torevenue under tax laws. If yes, ensure appropriatedisclosure.

Notes

All capital receipts which are not directly related to assets/liabilities should be disclosed here.

Conclusion


14 Particulars of depreciation allowable as per the Income-tax Act, 1961 in respect of eachasset or block of assets, as the case may be, in the following form:

(a) Description of asset/block of assets.

(b) Rate of depreciation

(c) Actual cost or written down value as the case may be

(d) Additions/deductions during the year with dates; in case of addition of an asset, dateput to use; including adjustments on account of

(i) Modified Value Added Tax credit claimed and allowed under the Central ExciseRules, 1944, in respect of assets acquired on or after March 1, 1994.




(ii) Change in rate of exchange of currency, and

(iii) Subsidy or grant or reimbursement, by whatever name called.

(e) Depreciation allowable.

(f) Written down value at the end of the year.


i. Obtain a schedule in the form required under theclause. Description of asset/block of asset should beunder the following heads:

• Building

• Plant and Machinery

• Furniture and Fixtures

• Vehicles/Cars (acquired after 1-4-1990)

• Other Specified Assets and

• Intangible Assets

• Computers

ii. Identify the opening block of WDV from previousyear’s return of income.

iii. Check/vouch adjustments to the block of fixed assetsduring the year from statutory audit file or relevantsupports.

iv. Identify separately and vouch for adjustments onaccount of the following:

• CENVAT, from RG 23A Part II and RG 23C PartII registers

• Change in rate of exchange of currency, from thefinancial statements/audit work papers

• Subsidy/grant/reimbursement, etc., verify thescheme under which it is received and ensureappropriate treatment in books.

v. Confirm whether rates and amount for claim ofdepreciation are as per Section 32 and Rule 5 of theIncome-tax Act and Rules respectively.

Notes

Suitable note should be put for our reliance on last returnof income for opening WDV of the asset, since that maybe subject to change during assessment.



An assessee may not desire to claim depreciation inrespect of any block of asset in any year. In that case, aspecific mention about the assessees not to claimdepreciation should be stated. The relevant decision caselaws on which reliance is placed by the assessee forexercising his option not to claim depreciation should alsobe stated by way of a note.

It is possible that there may be certain disputes about therate of depreciation in respect of any block of assets orwith reference to the computation of WDV, etc. in theearlier years. Therefore, the figures of WDV of block ofassets or the rates of depreciation may change. Suitablenote with regard to such items in respect of whichdisputes of earlier years are not resolved up to the dateof giving the audit report and it should be clarified that thefigure of depreciation allowable may change as a result ofany decision which may be received after the audit reportis given.

Conclusion:


15. Amounts admissible under Sections (a) 33AB (b) 33ABA (c) 33AC(wherever applicable)(d) 35 (e) 35ABB (f) 35AC (g) 35CCA (h) 35CCB (i) 35D (j) 35DD (k) 35DDA (l) 35E

Debited to the profit & loss account. (showing the amount debited and deductionallowable under each section separately);

(a) Not debited to the profit and loss account.


i. Discuss whether any of the sections referred areapplicable to the assessee. The business activities/expenditures covered are:

• Growing and manufacturing of tea (33AB)

• Prospecting/extraction/production of petroleumand/or natural gas (33ABA)

• Operation of ships (33AC)

• Scientific research (35)

• Telecommunication services (35ABB)

• Eligible projects or schemes for promotion ofsocial and economic welfare (35AC and rules 11Fto 11-O)




• Rural development programmes (35CCA)• Conservation of natural resources (35CCB)• Preliminary expenses (35D)• Amortisation of expenditure in case of

amalgamation/demerger (35DD)• Amortisation of expenditure incurred under

voluntary retirement scheme (35DDA)• Prospecting/extraction/production of any minerals

(35E)ii. Scrutinise general ledger for items of allowable

expenses, particularly those in the nature of capitalexpenditure, which under tax laws are allowed asdeduction (e.g. licence fees, preliminary expenses asdefined under 35D)

iii. Check depreciation schedule for any capitalised asset,is claimed as an allowance under tax laws and ensureseparate disclosure.

iv. Ensure appropriateness of deductions (particularlyweighted deductions) claimed under the relevantsections.

For items in (i) above, verify and classify items whichhave been charged to current statement of profit and loss,and those that are not.

Conclusion:


16(a) Any sum paid to an employee as bonus or commission for services rendered, wheresuch sum was otherwise payable to him as profits or dividend [Section 36(1)(ii)]


i. Obtain a schedule of bonus, ex gratia and commissionpaid/payable to employees stating the name of theemployee, designation, amount of bonus/ex gratia/commission paid/payable, etc.

Note

Disclose particulars of the above payments only if payablein lieu of dividends or profits.

Conclusion:




16(b) Any sum received from employees towards contributions to any provident fund orsuperannuation fund or any other fund mentioned in Section 2(24)(x); and due date forpayment and the actual date of payment to the concerned authorities [Section36(1)(va)].


i. Check payroll records for any deductions on accountof provident fund, superannuation fund, ESIC orcontribution towards any other fund for the welfare ofemployees.

ii. Obtain and verify chart for employees contributiontowards the above funds with their respective duedates and actual dates of payment.

Conclusion:


17 Amounts debited to the profit and loss account, being:

17(a) Expenditure of capital nature


i. Scrutinise audited accounts and schedules forexpenditures:

a. Repair & Maintenance

b. Travelling expenses

c. Salaries & Wages

d. Stores & spare parts consumption

e. Depreciation

f. Legal, Professional & Consultancy charges

g. Filing Fees

h. Capital losses written off

i. Miscellaneous Expenditure written off (BalanceSheet item)




j. Miscellaneous/general expenses, for capitalexpenditure written off.

k. Computer software expenses to ensure that itdoes not include any system software.

Notes

Common examples of such write offs would be –expenses on increasing authorised capital, share issueexpenses written off, obsolete assets written off, etc.

Legal opinions for specific accounting treatment to bebrought to Manager / Partner’s attention.

Conclusion:


17(b) Expenditure of personal nature


i. Verify whether Directors’ remuneration andperquisites covered by contractual obligations.

ii. Scrutinise report under CARO for any personalexpenses reported.

iii. Scrutinise earlier years assessment orders for anyexpenses being disallowed as personal expenses bythe Income-Tax Department, whether disputed or notby the assessee.

iv. Scrutinise schedules/vouchers for expenses like –Staff Welfare, Entertainment, Rent, General Expenses,Sales Promotion, Travelling, Hotel & Club bills, Guesthouse expenses, Drivers Salary, Telephone expenses,Electricity expenses and Motor Car expenses.

Conclusion:




17(c) Expenditure on advertisement in any souvenir, brochure, tract, pamphlet or the like,published by a political party


i. Refer to the Companies Act checklist in the file forcomments on contribution to political parties.

ii. Verify the supporting documents such as souvenirs orpamplets issued by the political party.

Notes

Contribution to trade union affiliated to a political partyshould also be reported. Disclosure is not required, iftrade union separately recognised

Conclusion:


17(d) Expenditure incurred at clubs –

(i) as entrance fees and subscriptions

(ii) as cost for club services and facilities used


i. Check the payments to clubs for expenditure ofpersonal nature or entertainment. Disclose if the sameitem is included in another clause of the Statement ofParticulars.

ii. Check the other revenue heads of account forpayments to clubs.

Notes

Payments to clubs would not include payments to serviceorganisations like Lions, Rotary, Giants, Diners, etc.

Conclusion:




17(e) (i) Expenditure by way of penalty or fine for violation of any law for the time being inforce.

(ii) Any other penalty or fine.

(iii) Expenditure incurred for any purpose which is an offence or which is prohibited bylaw.


i. Make prima facie inquiry about the applicable laws tothe organisation with the management and alsoidentify specific statutes based on review of clientsbusiness.

ii. Verify from audit work papers for expenditure in thenature of penalty, fine, illegal payments.

iii. Verify Income Tax, Sales Tax, Excise, P.F. and otherorders for penalty and other payments.

Conclusion:


17(f) Amounts inadmissible u/s 40(a).


i. Obtain statement of payments made outside India,(with corresponding TDS amount) on account ofinterest, royalty, fees for technical services orother sum paid outside India or in India to a non-resident (other than a company/foreign company)chargeable under the Act.

ii. Cross check with expenditure in foreign currencydisclosed in the notes to account.

iii. Verify whether adequate tax has been deducted andpaid on the above payments. If not, then give detailsof non/short deductions.

iv. For the items of payments stated in (i) above wherethe tax deducted in subsequent year or deducted butpaid after the time limit given in of section 200(1), thededuction of the amount of royalty etc. should betaken in the previous year of payment of tax. Reportthe list of such inadmissible amounts.




v. In case of payments to residents of interest,commission or brokerage, fees for professional ortechnical services, contractor/sub-contractor onwhich tax was not deducted or deducted but not paidbefore the prescribed time limit such payments will bedisallowed. Report the list of such inadmissibleamounts.

vi. FBT and STT are inadmissible for computing income.Verify the amounts based on available information andreport them separately under this clause.

vii. Disclose the amount of income tax, FBT and wealthtax charged to the statement of profit and loss.

viii.Obtain an employee wise statement of salaries paidoutside India with corresponding tax withheld andverify the accuracy of the deduction.

ix. 40(a)(iv) Provident fund – TDS – Salaries – pending.

x. Write appropriate disclaimer where it was not possibleto verify or ascertain certain inadmissible amountspertaining to any of the above categories.

Note

Where taxes are paid abroad and are grouped underrates and taxes/any other account head, the same shouldbe disclosed.

In cases where taxes are not deducted properly duringthe year but on an overall basis the amount deducted forthe year is correct, then non-deduction/short deduction fora particular month need not be reported.

Conclusion:




17(g) Interest, salary, bonus, commission or remuneration inadmissible under Section 40(b)/40(ba) and computation thereof.


i. Verify the details of payments to partners/members forinterest, salary, bonus, commission or remunerationwith reference to the deed of partnership/otherdocuments (in case of AOP or Body of Individuals)and books of account.

ii. Work out payments in excess of limits prescribedunder Section 40(b)/40(ba) and report the same in theStatement of Particulars.

Notes

Payments to the partner only in the capacity as partnershould be stated (i.e.; payments for specific professionalservices, etc. should not be reported). However, obtainparticulars thereof for the purposed.

Conclusion:


17(h) a) Whether a certificate has been obtained from the assessee regarding paymentsrelating to any expenditure covered under section 40A(3) that the payments weremade by account payee cheques drawn on a bank or account payee bank draft, asthe case may be, [Yes/No]

b) amount inadmissible under section 40A(3), read with rule 6DD [with break-up ofinadmissible amounts];


i. Obtain a certificate from the assessee for all paymentsin excess of Rs. 20,000/- stating that they were madeby account payee cheque/bank draft.

ii. In case the assessee is unable to give a cleancertificate then the certificate should state paymentsthat were made otherwise than by a/c payee cheque/draft then payments exceeding Rs. 20,000/- in cash orby cheques/drafts which are not crossed should belisted therein.




iii. Cross verify the list given by the assessee with thebank statements.

iv. Scrutinise cash book to ensure completeness andaccuracy of list provided by the assessee.

v. Independently look for such payments in cash thatmay not be included in the list / certificate provided bythe assessee.

vi. Ensure disclosure for obtaining certificate andinadmissible amounts under S. 40(A)(3) read withRule 6DD. (See note below)

Notes

The details obtained from the assessee should also coverthe payments falling within the exceptions provided inRule 6DD(a) to (l), and payments not relating toexpenditure such as advances and loans to employees,which are not to be reported in the Statement ofParticulars.

Ensure that the disclosure consist of inadmissibleamounts which is 20% of the amounts in excess of eachsuch expenditure as the limit is qua each expenditure.

Payments to employees in respect of salaries, wages,leave travel assistance, etc., are also to be reported ifthey are paid otherwise than by crossed cheque/draft.

Conclusion:


17(i) Provision for payment of gratuity not allowable under section 40A(7)


i. Obtain schedule for provision for payment of gratuity.

ii. Cross tally schedule with the amount as per auditedaccounts.

iii. Check the provision for gratuity which has becomepayable to employees who have left the services.

iv. Check the actual date of payment in case of funds setup by the company and the due date as per the trustdeed.




v. Indicate the following separately

a. Provision towards approved gratuity fundcontribution

b. Provision for gratuity that is due and payableduring the year.

c. Other provisions.

Conclusion:


17(j) any sum paid by the assessee as an employer not allowable under section 40A(9)


i. Obtain list of payments made by an employer towardsthe setting up or formation or contribution to any fund,trust, company, etc., other than:

a. Recognised provident fund.

b. Recognised gratuity fund.

c. Recognised superannuation fund.

d. As required by or under any other law.

ii. Indicate in the Statement of Particulars the paymentsmade by the employer other than those mentioned in(i) above.

Conclusion:


17(k) Particulars of any liability of a contingent nature.


i. Scrutinise liability accounts to identify any liability ofcontingent nature debited to the profit and lossaccount.




Notes

State that this does not include provision for leaveencashment debited to the profit and loss account andprovided in accordance with Accounting Standard 15.

Conclusion:


17(l) Amount of deduction inadmissible in terms of section 14A in respect of the expenditureincurred in relation to income which does not form part of the total income,


i. Does the assessee have any exempt income;

ii. If ‘yes’ then verify whether the assessee has incurredany expenditure to earn exempt income,

iii. Consider the account head that are likely to containexpenditure relating to such income and scrutinisethem,

iv. If there is any expenditure relating to such exemptincome then such expenditure incurred should bedisclosed under this point and added back to thetaxable income.

v. In case of composite business the expenditure relatingto the exempt income should be determined as permethod to be specified by CBDT.

14A is amended from AY 2007-08.

Conclusion:




17(m) Amount inadmissible under the proviso to section 36(1)(iii).


i. Has the assessee accrued/paid any interest on loanborrowed,

ii. Ascertain the purpose of such loan,

iii. Where the amount is borrowed for capital asset whichis still not put to use ensure that such amounts are nottreated as expenses,

iv. This inadmissible amount should be shown in thispoint

In case the asset for which any amount is borrowed and itis put to use during the year under report then apportionthe amount of interest on time basis.

Conclusion:


18 Particulars of payments made to persons specified under section 40A(2)(b)


i. Obtain duly certified list of persons specified underSection 40A(2)(b) and cross tally with previous yearslist. Also check whether the entities/parties listed inthe register maintained under Section 301 of theCompanies Act, 1956 or referred to in any BoardMinutes fall in category of specified persons.

ii. Obtain list of expenditures in respect of whichpayment has been made or is to be made for goods,services and facilities (including remuneration andinterest to partners) to the above-mentioned categoryof persons and check with:

• Agreements/authorisation

• Vouchers/entries in the general ledger

• Personal accounts of the parties

Notes

Payment would include amounts paid/payable.




Only amounts debited to profit and loss account shouldbe disclosed.

Conclusion:


19 Amounts deemed to be profits and gains under section 33AB or 33ABA or 33AC.


i. Confirm the workings of profits and gains as per therequirement of these sections.

ii. In respect of section 33ABA verify from theaccountants’ report required under sub-section (2) ofthis section.

Conclusion:


20 Any amount of profit chargeable to tax under section 41 and computation thereof


i. Obtain a statement of written back during the year. Inquire whether allowance in tax returns was claimedin earlier years.

ii. Scrutinise other income and reserves account andreport receipts, upon succession of business.

iii. For Power Companies only — In case of sale offixed assets, check whether the sale value exceedsthe WDV of that particular asset. If yes, reportdifference under this clause. However, this should berestricted to the difference between cost and WDV ofthat particular asset.

iv. In case of sale of assets used for scientificresearch, the excess of sale proceeds (together withdeduction under section 35(2)(i), 35(2)(ia), 35(2B)(c))over capital expenditure; or the amount of deductionabove, whichever is lower should be reported.




v. Obtain a statement of recovery of debts earlier writtenoff. Report to the extent amount allowed as deductionin the past assessments.

vi. In case assessments are not complete for the years inrespect of which bad debts are recovered, ensureappropriate disclosure by way of note.

vii. Obtain list of amounts withdrawn from special reservecreated under section 36(1)(viii) with correspondingdeduction allowed in earlier assessments. Report withnote as discussed under verification point (vi) above.

viii. In case business (in respect of which all the aboveincome is received) is discontinued, any unclaimedloss (other than speculation loss) of the year in whichthe business is discontinued for that particulardiscontinued business can be set off against theseincomes. Consider the effect of the same in thecomputation under this clause.

Conclusion:


21(i)* In respect of any sum referred to in clauses (a), (b), (c), (d), (e) or (f) of section 43B theliability for which -

(A) pre-existed on the first day of the previous year but was not allowed in theassessment of any preceding previous year and was

(a) paid during the previous year

(b) not paid during the previous year

(B) was incurred in the previous year and was

(a) paid on or before the due date for furnishing the return of income of theprevious year under section 139(1);

(b) not paid on or before the aforesaid date.


i. Scrutinise previous years tax audit report, currentliabilities & secured/ unsecured loans (for interestaccrued and due) to identify any of the followingamounts pertaining to earlier years:




• Tax, duty, cess or fee (by whatever name called)levied under any law (e.g., excise duty provision,customs duty, service tax, electricity duty, R&Dcess, textile cess, municipal taxes, profession tax,octroi duty, etc);

• Any sum payable by employer by way ofcontribution to provident fund or superannuationfund or any fund for the welfare of employees;

• Bonus or commission payable to employees;

• Interest payable on any loans or borrowings frompublic financial institution, state financialcorporation or industrial investment corporation,and

• Interest payable on term loans availed from ascheduled bank.

• Leave encashment

• Any sum payable by an employer in lieu of leaveat the credit of employee

ii. Verify payments relating to above (not allowed as adeduction in the earlier assessment years) withrelevant supports viz., challans, receipts, bank advise,etc. Also disclose amounts unpaid out of above.

iii. For expenditures mentioned in (i) above debited toprofit and loss account (including those not routedthrough the profit and loss account) of the currentyear, determine the amount remaining unpaid (i.e.,shown as liabilities) as at 31st March. Also verifyamounts paid subsequently on or before the filing ofreturn of income, and balance outstanding.

iv. In respect of any tax, duty, cess or fee reported inclause 21(i) it is necessary to state whether it isrouted through the profit and loss account. For thisrefer to the accounting policy on sales to confirm ifsales include excise duty, sales tax, service tax, etc.

v. Verify report under CARO for any statutory duesremaining unpaid.

(Note: The information given under 21(i)(B) is only up tothe date of signing this report. )

Conclusion:




22(a) Amount of Modified Value Added Tax credits availed of or utilised during the previousyear and its treatment in the profit and loss account and treatment of outstandingModified Value Added Tax credits in the accounts


Purchase of goods and materials

i. Document the system of accounting excise at the timeof purchase of goods and materials, point of availmentor utilistion of CENVAT credit and entries passed atthe time of availment/utilisation of CENVAT credit.

ii. Quantify and verify from excise records the amount ofCENVAT credit available for the year, amount utilisedand the balance outstanding.

iii. Provide a summary of above account with descriptionand ensure disclosure of the same

Conclusion:


22(b) Particulars of income or expenditure of prior period credited or debited to the profit andloss account


i. Check the items under the head prior periodadjustments, or check the notes on accounts toensure whether any expenditure or income of prioryear is debited or credited to profit and loss account.

ii. Reference to be made to the method of accountingfollowed by the organization and stated at clause 11of Form 3CD.

Notes

In case of cash system of accounting, there will not beany item appearing under this clause.

Conclusion:




23 Details of any amount borrowed on hundi or any amount due thereon (including intereston the amount borrowed) repaid, otherwise than through an account payee cheque[Section 69D]


i. Obtain a statement of hundis borrowed and repaidduring the year with the mode and amount of eachindividual payment.

ii. Also check the mode of payment of interest due onhundi during the year.

iii. Obtain loan confirmations.

iv. Disclose all payments made for above otherwise thanby account payee cheque.

v. Ensure disclosure of standard note of the firm for ourinability to verify whether the payments are donethrough account payee cheque or not.

Notes

It should be noted that hundi does not include bills ofexchange but bills of exchange includes hundi.

Where any amount is borrowed on hundi or repaymentthereof (including interest) is otherwise than through andaccount payee cheque drawn on a bank, the amount soborrowed or repaid shall be deemed to be the income ofthe person borrowing or repaying for the previous year inwhich the amount was borrowed or repaid.

Conclusion:


24(a) *Particulars of each loan or deposit in an amount exceeding the limit specified in Section269SS taken or accepted during the previous year:—

(i) Name, address and permanent account number (if available with the assessee) ofthe lender or depositor;

(ii) Amount of loan or deposit taken or accepted;

(iii) Whether the loan or deposit amount was squared during the previous year;

(iv) Maximum amount outstanding in the account at any time during the previous year;

(v) Whether the loan or deposit was taken or accepted otherwise than by an accountpayee cheque or an account payee bank draft

* (These particulars need not be given in the case of a government company, abanking company or a corporation established by a Central, State or Provincial Act.)




i. Obtain statement in the required format and checkwith relevant accounts in general ledger.

ii. Scrutinise loan accounts, current account and depositaccounts for similar items.

iii. Scrutinise advances account to find out whether suchadvances are in the nature of loans/deposits.

iv. Obtain loan confirmations

Notes

Particulars to be disclosed above would apply only incases where the loans/deposits taken exceeds Rs. 20,000during the year.

Adjustments made in the ledger accounts of the partiesby journal entries would also amount to repayment oracceptance of loan/deposit.

In case details are not given because they arevoluminous, ensure proper disclosure (like in respect ofbank overdraft/cash credit, fixed deposits, etc.)

Ensure standard note in respect of disclaimer on inabilityto verify whether the loan/deposit was taken by anaccount payee cheque/draft.

Conclusion:


24(b) Particulars of each repayment of loan or deposit in an amount exceeding the limitspecified in Section 269T made during the previous year:—

(i) name, address and permanent account number (if applicable with the assessee) ofthe payee;

(ii) Amount of the repayment;

(iii) Maximum amount outstanding in the account at any time during the previous year;

(iv) Whether the repayment was made otherwise than by account payee cheque oraccount payee bank draft.




i. Particulars (i) to (iv) need not be given in the case ofa repayment of any loan or deposit taken or acceptedfrom Government, Government company, bankingcompany or a corporation established by a Central,State or Provincial Act

ii. Obtain statement in the required format and checkwith relevant accounts in general ledger.

iii. Scrutinise loan accounts, current account and depositaccounts for similar items.

iv. Ensure that all the items, which are covered under 24(a) above and in respect of which repayment is madeduring the year, disclosure is made under this clause.

Notes

Particulars to be disclosed above would apply only incases where the loans/deposits taken exceedsRs. 20,000/- during the year.

Adjustments made in the ledger accounts of the partiesby journal entries would also amount to repayment oracceptance of loan/deposit.

In case details are not given because they arevoluminous, ensure proper disclosure (like in respect ofbank overdraft/cash credit, fixed deposits, etc.)

Ensure standard note in respect of disclaimer on inabilityto verify whether the loan/deposit was repaid by anaccount payee cheque/draft.

Though section 269T deals with only deposit, reportingwill be for both loans and deposits since the form requirescomment on both. However, if the client takes the viewthat section 269T does not cover repayment of loan thenappropriate disclosure should be made.

Conclusion:




24(c) Whether a certificate has been obtained from the assessee regarding taking oraccepting loan or deposit, or repayment of the same through an account payee chequeor an account payee bank draft. [Yes/No]


i. Obtain a certificate from the assessee that all theloans or deposits or repayments of loans have beenmade through an account payee cheque or anaccount payee bank draft

ii. No certificate is required if repayment of any loan ordeposit taken or accepted from Government,Government company, banking company or acorporation established by a Central, State orProvincial Act

Conclusion:


25(a) Details of brought forward loss and depreciation allowance in the following manner tothe extent available


i. Verify the last return of income filed, and make a listof all the carry forward losses.

ii. Verify the recent assessment orders and ensure thatthe effect of such assessment, so far as applicable tothe carry forward losses and depreciation, has beenproperly dealt in the annexure prepared.

iii. Ensure disclosure of amount of carry forward lossbeing subject to change on account of openassessments.

iv. Get the annexure so prepared verified by the auditGroup.

Notes

All types of carry forward of losses, depreciation etc.should be included.

Remarks column should give the status under appeal, etc.

Disclosure:

Ensure that the disclosure is made in the belowmentioned Format



Serial Assessment Nature of Loss Amount as Amount RemarksNumber year /Allowance returned as assessed

(in rupees) (give referenceto order)

NIL

Conclusion:


25(b) Whether a change in shareholding of the company has taken place in the previous yeardue to which the losses incurred prior to the previous year cannot be allowed to becarried forward in terms of section 79.


i. Is there any brought forward loss? If no b/f loss isthere then skip this point,

ii. Is the assessee other than company in which thepublic is substantially interested?

iii. If ‘yes’, then is there any change in the share holdingpattern carrying voting rights compared to the yearwhose loss is sought to be set off?

iv. Is the above change is 51% or more on the last dayof the year under report?

v. If yes then report the same under this clause.

Such b/f loss will not be admissible for setoff. It should benoted in the Return of Income and suitably disclosed.

Conclusion:




26 Section-wise details of deductions, if any, admissible under Chapter VIA


i. Verify the return of income of earlier years to ensurethat all the deductions claimed in the previous year,and if applicable in the current year, have beendisclosed.

ii. Scrutinise the current year financial statements andaudit work papers for identifying any claims availableunder the chapter.

iii. In respect of sections under which independentcertificates are required, ensure that a copy of thesame is put on the file.

iv. Ensure full particulars of deductions with quantificationthereof are verified and signed off by audit staff.

Notes

Though the tax audit report is in relation to business andprofession income, disclosure of information on deductionavailable under other heads should be made.

The information required under this clause can be givenonly when the return of income for the year has beenmade up.

Conclusion:


27 a) Whether the assessee has complied with the provisions of Chapter XVII-B regardingdeduction of tax at source and regarding the payment thereof to the credit of theCentral Government. [Yes/No]

b) If the provisions of Chapter XVII-B have not been complied with, please give thefollowing details*, namely:—

Amount

i Tax deductible and not deducted at all

ii Shortfall on account of lesser deduction than required to be deducted

iii Tax deducted late

iv Tax deducted but not paid to the credit of the Central Government




i. Obtain a statement of TDS deducted showing theparticulars of the head under which tax is deducted,amount deducted, due date of payment, payment dateand amount and the delay in payment.

ii. Check the relevant vouchers, challans and e-TDSreturns submitted of the tax so deducted.

iii. Identify various heads of expenses where TDS thereis a likelyhood of TDS liability and scrutinise the thoseaccounts to ensure that wherever TDS was liable tobe deducted, is deducted and deducted correctly,(Ensure you have the correct heads and rate chartincluding changes if any during the year)

iv. Scrutinise relevant accounts for expense heads suchas salaries, interest, royalties, contractors/sub-contractors, professional technical fees etc.

v. Scrutinise the ledger to obtain instances where tax isdeductible but it is not deducted or there is shortdeduction,

vi. Report the instances where tax is deducted but paidafter due date,

vii. Report instances of late deduction of tax and nonpayment to the Government account.

Notes

Instances of

— Tax deductible and not deducted;

— Tax deducted lower than what was required;

— Tax deducted late;

— Tax deducted and not paid or late paid;

The above reporting should be done within therelevant heads for which the entire details aresubmitted. In case it is not possible to go through theentire account due to the quantum of entries then itshould be disclosed by a suitable note that it wasdone on a test check basis.

Ensure appropriate disclosure.

Conclusion:




28(a) In the case of a trading concern, quantitative details of principal items of goodstraded —

(i) Opening Stock:

(ii) Purchases during the previous year:

(iii) Sales during the previous year:

(iv) Closing Stock:

(v) Shortage/excess, if any:


i. Verify whether the quantitative information is given asper stock records maintained by the assessee orcompiled from financial statements.

ii. Verify that at least the items, which constitute morethan 10% of the value of purchases or consumption orturnover as the case may be are disclosed as aseparate item.

iii. The information about percentage of yield, shortage ofraw materials as well as shortage and percentage offinished products to be given to the extent data isavailable from the assessee’s records. Non-receipt ofparticulars, if any, should be stated.

Conclusion:


28(b) In the case of a manufacturing concern, quantitative details of principal items of rawmaterials, finished products and byproducts —

A Raw Materials -

(i) Opening Stock

(ii) Purchases during the previous year

(iii) Consumption during the previous year

(iv) Sales during the previous year

(v) Closing Stock

(vi)*Yield of finished products

(vii)* Percentage of yield

(viii)* Shortage/excess, if any



B Finished Products/Byproducts —

(i) Opening Stock

(ii) Purchases during the previous year

(iii) Quantity manufactured during the previous year

(iv) Sales during the previous year

(v) Closing Stock

(vi) Shortage/excess, if any

*Information may be given to the extent available.


i. Verify quantitative details from the notes to account.

Conclusion:


29 In the case of a domestic company, details of tax on distributed profits under section115-O in the following form:—

(a) Total amount of distributed profits;

(b) Total tax paid thereon;

(c) Dates of payment with amounts.


i. Ensure that total amount of profits distributed and thetax paid thereon is as per the audited profit and lossaccount.

ii. Verify and obtain copy of challan for payment of taxand date of payment.

Notes

Only the dates of payment in respect of tax on dividend isto be given and not the date of payment of dividend.

Conclusion:




30 Whether any cost audit was carried out, if yes, enclose a copy of the report of suchaudit [See section 139(9)]


i. Verify the CARO for any cost audit conducted underSection 233B of the Companies Act, 1956. Includewhether cost audit has been conducted or not in theletter of representation.

ii. If yes, whether a copy of the same has been attachedto the Tax Audit Report.

Notes

No verification is required in case the audit has been soconducted.

Also, if the audit was supposed to have been conductedand the same has not been conducted, this fact is to bedisclosed in the report.

Conclusion:


31 Whether any audit was conducted under the Central Excise Act, 1944, if yes, enclose acopy of the report of such audit.


i. Inquire with the client, whether any audit conductedunder the Central Excise Act, 1944. Include whetheraudit under Central Excise Act, 1944 has beenconducted or not in the letter of representation.

ii. If above audit has been conducted then attach copy ofthe same to the Tax Audit Report.

Notes

No verification is required in case the audit has been soconducted.

Conclusion:




32 Accounting ratios with calculations as follows

(a) Gross profit/Turnover

(b) Net profit/Turnover

(c) Stock-in-trade/Turnover

(d) Material consumed/Finished goods produced


i. Verify figures required for the purpose of ratios fromthe audited accounts and ensure that they areconsistently followed.

ii. Give particulars of the components of the amountsconsidered in the ratios.

Notes

The manner in which the gross profit has been derivedshould be disclosed and be followed consistently.

Net profit should be the profit before tax but after all theother adjustments.

Stock-in-trade should be the average of opening andclosing stock of work-in-process and finished goods.

Finished goods produced would be derived by thefollowing formula :

Turnover xxx

Less: Gross Profit xxx

xxx

Add: Closing Stock of Finished of goods xxx

xxx

Less: Opening Stock of Finished goods xxx

Finished goods produced xxx

The stock figures should be taken as per books ofaccount and not the adjusted number as per section145A.

Conclusion:



Prepared Date: Reviewed Date :by : by :

Annexure A

Part A Repeat the details as reported in Part A of the Form 3CD.

Part B i. This part should contain the relevant code applicable to the business.

ii. Details of items stated in Serial numbers 1 to 9 and 14 to 16 should be same as inthe Annual Accounts.

iii. Remaining items from Serial numbers 10 to 13 should be verified against relevantaccount head if given separately in the annual accounts or from the relevantaccount balances as per general ledger verified by the auditor.

Annexure 1

Part A

1 Name of the assessee:

2 Address:

3 Permanent account number:

4 Status:

5 Previous year ended:

6 Assessment year:

Part B

1 Nature of Business or profession in respect Codeof every business carried on during thePrevious Year

Part C

Parameters Current year Preceding YearRs. Rs.

1 Paid-up share capital/capital of partner/proprietor

2 Share Application Money/CurrentAccount of Partner or Proprietor

3 Reserves and Surplus/Profit and Loss Account

4 Secured loans

5 Unsecured loans

6 Current liabilities and provisions

7 Total of Balance Sheet



Parameters Current year Preceding YearRs. Rs.

8 Gross turnover/gross receipts

9 Gross profit

10 Commission received

11 Commission paid

12 Interest received

13 Interest paid

14 Depreciation as per books of account

15 Net Profit (or loss) before tax as perProfit and Loss Account

16 Taxes on income paid/provided for in the books



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Documents

Tax Audit Checklist