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 .
31