4.5 Records & Reporting
4.5.1 Accounting Accounting is classifying and recording business transactions that have a financial impact.
4.5.1.1 Methods of Accounting There are two methods of accounting
( i) Accrual or mercantile basis- Where the financial impact of the transaction, events and circumstances of an enterprise is recorded in respect of the period in which they occur, rather than in the period in which cash is received or paid by the enterprise
( ii) Cash basis- This is the method of recording the transactions i. e. revenues, expenses, assets and liabilities, in the period in which actual receipts or payment occurs.
It is mandatory for a company to keep its books of accounts on Accrual basis Books of Accounts include cash book, bank book, general ledger, day book.
4.5.2 Audit 4.5.2.1 Statutory Audit
The Indian Companies Act mandates that businesses have their accounts audited by an Indian firm of Chartered Accountants. These audited accounts are to be filed with the Registrar of Companies and in some cases, with the RBI. In case of manufacturing companies, excise authorities and state VAT authorities can ask for audited financials.
4.5.2.2 Internal Audit
Companies where the paid-up capital and reserves exceeds ` 5 million( US $ 1,776 approx) at the begning of the year or average turnover during the preceding three previous years exceeds
` 50 million( US $ 183,553 approx), need to have their internal controls certified. The company may out source this function to a Chartered Accountancy firm or set-up their own team, the latter being more common in case of large companies.
4.5.2.3 Cost Audit Order
Final product based industries are required to mandatory have it cost audit records audited by a cost accountant. These industries will be covered only if they fulfill certain threshold limits with respect to net worth, turnover and listing in stock exchanges.
4.5.2.4 Cost Compliance Order
Other Companies not covered by cost audit order and engaged in manufacturing, processing, mining and production and fulfilling threshold limits mentioned above will have to submit a cost compliance report duly certified by a cost accountant.
4.5.2.5 Tax Audit
Businesses with turnover exceeding ` 10 million( US $ 183,553 approx) need to additionally have accounts audited under specific provisions of the Indian income tax laws and certified by an Indian firm of Chartered Accountants.
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