What is a Private Limited Company?
A Private Limited Company is a firm held under a private ownership. Any Private companies may issue stock and have shareholders, but their shares that do not trade on public exchanges and are not issued through an initial public offering (IPO). Therefore, private firms do not need to meet the SEC (Securities and Exchange Commission’s) strict filing requirements for public companies. In general, the shares of these businesses are less liquid. Their valuations are more difficult to determine as compared to other companies. Every financial year there should be regular Audit of Private Limited Companies.
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Audit of Private Limited Companies
SEC (Securities and Exchange Commission) requires publicly traded companies to provide GAAP-compliant audited financial statements. However, these Private companies may be subject to GAAP to satisfy the lenders, certain classes of shareholders, or insurance companies. This is why the Audit of Private Limited Companies is done. Therefore, many private companies don’t issue audited financial statements. Every Company should prepare its Accounts and get audited by a Chartered Accountant at the end of every Financial Year compulsorily.
The Auditor must provide an Audit Report and the Audited Financial Statements for the purpose of filing it with the Registrar. Therefore, every Private Limited Company is required to file its Annual Return within 60 days of the holding of Annual General Meeting. 1st April to 31st March will be for the period Annual Return.
It is mandatory for every Private Limited Company to hold an AGM in every Calendar Year. Companies are required to hold their AGM within a period of six months, from the date of closing of the Financial Year.
Types of Audits
Statutory audits are conducted in order to know about the state of a company’s finances and accounts to the Indian government. Such audits are performed by qualified auditors who are working as external and independent parties. The audit report of a statutory Audit of Private Limited Companies is made in the form prescribed by the government agency. Therefore, the Statutory audit is mainly done to know where actually the firm stand economically.
The Internal audits are conducted at the bequest of internal management in order to check the health of a company’s finances and analyze the operational efficiency of the organization. Internal audits may be performed by an independent party or by the company’s own internal staff. However, Internal Audit is beneficially to know all the finances of the internal management and to make any required changes.
Statutory Audit in India
In India, the respective audit is taken place during the financial year which is April 1 to March 31. There is two most common type of statutory audit which takes place in India these are:
- Tax Audit
- Company Audit
Tax Audit :
The Tax audits suggest that every person whose business turnover exceeds INR1 crore and every person working in a profession with gross receipts exceeding INR25 lakh must have their accounts audited by an independent chartered accountant. Therefore, tax audit an important component Audit of Private Limited Companies. It should be taken care that the provision of tax audits are applicable to everyone, be it an individual, a partnership firm, a company or any other entity. However, the tax audit report is to be obtained by September 30 after the end of every previous fiscal year. Non-compliance with the tax audit provisions may attract a penalty of 0.5 percent of turnover or INR1 lakh, whichever is lower. As well as there is no as such rules for the removal of Tax Auditors.
Company Audit :
In the Audit of Private Limited Companies, the provisions for a company audit are always contained in the Companies Act, 1956. The companies irrespective of their nature of business or turnover must have its annual accounts audited each financial year. However, for this purpose, the company and the directors of the company have to first appoint an auditor at the outset. Thereafter, at each annual general meeting (AGM), an auditor is appointed by the shareholders of the company who will hold the position from one AGM to the conclusion of the next AGM. In Individual as well as the partnership firms, auditors cannot be appointed for more than one or two terms, respectively. Therefore, after the completion of the term, the auditor should be changed always.
Only an independent chartered accountant or a partnership firm of chartered accountants can be appointed as the auditor of a company. The following persons are specifically disqualified from becoming an auditor per the Companies Act:
- Corporate Body
- An Officer or an Employee
- Superior of the Employees or partner with an employee of the company.
- Any person who has guaranteed to the company on behalf of another person a sum exceeding INR1,000 or is indebted to a company for a sum exceeding INR1,000.
- Anybody who has held their any type of securities in the company after one year from the date of commencement of the Companies Act, 2000.
Functions of Audit
Given below are some functions of auditing :
- Review and Evaluate the risk management so that changes are made accordingly.
- Evaluate the relevance, reliability of management, financial information and internal control systems.
- Provides recommendations on procedures.
The Frequency of Internal Auditing
Mentioned below are the points that suggest how frequent the internal auditing must be done in a Private limited company. These points are :
- There are no hard set of rules in an internal auditing of the organization. Often, the type of auditing procedures that will be performed will have an impact on the frequency of when an internal audit should be done in the organization.
- There are also a variety of other factors that will control how often will it is a need for internal auditing.
- The internal audits are performed for quality assurance of products that will be shipped out to customers. There can be a set of control measures that require internal auditing of products. As well as the production procedures on a weekly or monthly basis.
- If the company wishes to evaluate the management systems to determine whether processes. The objectives are meeting company policies and regulatory compliance. They can have them performed on a quarterly basis or twice yearly.
Appointment of Auditors
An Auditor must be appointed by the Board of directors after the incorporation of a company in the first annual general meeting. The Auditor will typically hold term till the conclusion of 6th AGM or 5 years. The appointment of an Auditor can also be made for a period of 1 year, renewable at each annual general meeting.
Before the appointment of the Auditor, a written consent along with Certificate must be obtained from the CA. However, according to this he/she is eligible for appointment as Auditor of a company. That the proposed appointment is in accordance with the Companies Act.
The appointment of First Auditor of the Company must be completed by the Board of Directors within 30 days of incorporation. In case the Board of Directors fail to appoint an Auditor, the members of the company must be informed. The members will then be required to appoint an Auditor within 90 days at an Extra Ordinary General Meeting. An Auditor so appointed will hold office until the conclusion of the 1st Annual General Meeting.
Typically, the schedule of an audit is cyclical. In reviewing all the annual plans, the auditor should properly explain the appropriateness of the institution’s audit cycle. The Audit planning and scheduling are also based upon the outcomes of risk assessments performed at least once annually. However, when residual risk is equal to or exceeds the institution’s stated risk appetite for a given Subject. The best practices suggest that the Subject is audited no less than once annually and more often as deemed necessary.
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