Dos and Don'ts for SMEs undergoing statutory audits in India.   Y
    

Dos:

 

• Compliance with Accounting Standards: Ensure that your financial statements comply with the applicable accounting standards issued by the Institute of Chartered Accountants of India (ICAI) and/or as per the jurisdictions(IFRS, GAAP etc) and standards applicable. Compliance with Accounting Standards enhances the quality and reliability of financial reporting.

• Maintain Proper Documentation: Maintain accurate and comprehensive documentation of all financial transactions, supporting evidence, and relevant policies and procedures. Proper documentation facilitates the audit process and demonstrates adherence to regulatory requirements.

• Timely Preparation of Financial Statements: Prepare financial statements promptly at the end of each financial year. Timely preparation allows for a smoother audit process and minimises the risk of non-compliance penalties.

• Engage Competent Professionals: Engage qualified and experienced professionals, including chartered accountants and tax advisors, to assist in financial reporting and compliance matters. Competent professionals ensure accuracy, reliability, and adherence to regulatory requirements.

• Stay Updated with Regulatory Changes: Stay informed about changes in accounting standards, taxation laws, and other regulatory requirements that may impact your financial reporting obligations.

• Internal Control Review: Conduct periodic reviews of internal controls to identify weaknesses and implement necessary improvements. Strong internal controls mitigate the risk of fraud, errors, and non-compliance with laws and regulations.

• Engage with Your Auditor Early: Collaborate closely with your audit team from the outset. Provide them with all necessary information and access to relevant personnel to facilitate a smooth audit process.

• Regular Communication with Auditors: Maintain open and transparent communication with auditors throughout the audit process.

• Address Audit Findings Promptly: Address any audit findings or recommendations promptly and implement corrective actions as necessary to strengthen internal controls and improve financial reporting processes.

 

Don'ts:

 

• Non-disclosure of Material Information: Avoid withholding or misrepresenting material information from auditors or regulatory authorities. Full disclosure ensures transparency and compliance with legal and regulatory requirements.

• Ignoring Audit Recommendations: Do not disregard audit recommendations or findings without proper consideration. Address audit observations promptly and implement necessary corrective actions to enhance financial reporting and compliance.

• Non-compliance with Tax Laws: Ensure compliance with applicable tax laws and regulations, including timely payment of taxes and filing of tax returns. Non-compliance with tax laws can result in penalties, fines, and reputational damage.

• Overlooking Related Party Transactions: Exercise caution when engaging in related party transactions and ensure compliance with disclosure requirements under accounting standards. Transparent reporting of related party transactions enhances credibility and transparency.

• Inadequate Record-keeping: Avoid inadequate record-keeping practices, as they can hinder the audit process and raise concerns about the reliability of financial statements. Maintain organized and detailed records of financial transactions and supporting documentation.

• Lack of Board Oversight: Ensure active oversight and involvement of the board of directors or management in financial reporting and compliance matters. Lack of board oversight can lead to governance failures and reputation risks.

•  Review of Cross border transactions: Non-compliance with cross-border transaction guidelines, please look out for ideal and meaningful taxes being paid in the jurisdiction in which the company operates.  Keep your vigil on Place of effective management (POEM), TDS hygiene, FEMA, and RBI violations.