Book building Method: -

74.How to conduct tax Audit
1. The tax auditor shall be guided by the auditing standards and guidance notes as issued from time to time by Institute of Chartered Accountants of India.
2. Obtaining books of accounts, financial statements and other statements of particulars duly authenticated.
3. Evaluation of internal control system on the basis of which extent of vouching and verification can be determined.
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4. While conducting tax audit the provisions and objectives of sec, 44 AB shall be kept in mind.
5. The auditor shall have thorough knowledge of taxation provisions and judicial pronouncements.
6. The Central Government has notified the following ‘accounting Standards’ in respect of audit of financial statements under section 44 AB.
Disclosure of accounting policies – AS (IT) I
Disclosure of prior period items, extra ordinary items and changes in accounting policies AS (IT) II
Both of these standards are similar to accounting standards issued by Institute of Chartered Accountants of India i.e. AS 1 and AS 5 except the points in standard issued by central government like application of standards to the assessee following mercantile system of accounting, standards include fund flow statement instead of cash flow statement, question regarding the changes in accounting policy may be referred to Central Board of Direct Taxes etc.
Compulsory Tax Audit
Following are provisions relating to compulsory audit under Section 44(AB) of income Tax Act.
I. Tax audit is compulsory for a business if its total sales, turnover or gross receipts in a previous year exceed Rs 1 crore.
II. In case of a profession, Tax audit is compulsory if gross receipt exceed Rs. 25 lakhs.
III. If the profits of a business are determined on presumptive basis, the audit of accounts shall be on compulsory basis if he assessee claims that their profits are less then profits computed under the following sections
A. Sec 44 (AD) –profit from any business (whether it is retail trading or civil construction or any other business)
Provisions are as follows
a. Assessee should be resident individual or resident HUF or resident partnership
b. Assessee has not claimed exemption under section 10 (A), 10 (AA), 10 (B), 10 (BA), 80 (HH) or 80 (RRB)
The following persons are not eligible
a. Person carrying on profession under [section 44 (AA) (1)]
b. The person earning commission or brokerage or carrying on agency business or plying, hiring or leasing goods carriage.
c. Turnover/gross receipt in the previous year should not exceed 1 crore