FINANCIAL AUDIT –A TOOL TO AVOID FINANCIAL FRAUDS -III
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Vat Audit
Vat Audit is a popular concept in foreign countries. Countries like France & Korea have made VAT audit compulsory to keep a check on tax evasion. The concept of VAT audit is new for India. But most of the states have incorporated the audit provisions since inception. Especially some states like Maharashtra, Karnataka & Kerala have made detailed audit report compulsory if the gross turnover exceeds the specified limit mentioned in Act.
In Maharashtra Tax Audit has been introduced in VAT. There are two sections in the MVAT Act, 2002 which deals with audit i.e. sec. 22 & sec. 61.If one of the following conditions are fulfilled, the dealer is liable to get his books audited by a Chartered Accountant or Cost Accountant. (1) If the Turnover of sales or purchases exceeds Rs.40 Lacs during the financial year, and (2) A dealer or person who holds license in (i) Form P.L.L under the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966 or (ii) Form B- RL under the Maharashtra Manufacture of Beer & Wine Rules, 1966 or (iii) Form E under Special Permits & License Rules, 1952, or (iv) Forms FL –I, FL – II, FL- III, FL – IV under Bombay Foreign Liquor Rules, 1953, or (v) Forms CL- I, CL- II, CL- III, CL/FL/TOD – III under the Maharashtra Country Liquor Rules, 1973, such dealers are required to get their returns and accountants audited by CA or CWA. They have to submit the report of the same in Form No. 704 to the department within 10 months from the end of the year to which the report relates i.e. on or before 31st January each year.
Sec 29 of the MVAT Act deals with penalties. If the dealer fails to comply with the notice given U/s. 22, for any purposes, a penalty of Rs.1000/- may be levied. Whereas U/s. 61 if the dealer fails to furnish audited report in Form No. 704, a penalty equal to (1/10) th % of total sales or total purchases whichever exceeds Rs.40 Lacs in turnover or where both exceed, lower of them as the case may be or Rs.1 Lac, whichever is less is charged.
Advantages
(1) The financial audit safeguards financial interest of persons who are not directly associated in day to day matters of management. (Sleeping partners, non executive directors etc.) (2) Bankers and other financial institutions require the audited financial reports for loans and other borrowings, monetary assistance for determining creditworthiness of the borrower. With the help of these audited reports the banks conducts the financial feasibility before approving the loan proposal. (3) Audited A/c helps in settlements of accounts of the retiring & deceased partners/ directors. (4) For receiving grants from central, state governments and foreign countries. (5) It helps in maintaining the records up to date while it also acts as moral check on employees. (6) Audited A/c helps in early detection of frauds and errors. The risks of frauds and errors get minimized as the audit is conducted by an independent auditor. (7) Auditing helps in determination of value of business at the time mergers, acquisitions and amalgamations.
Conclusion
As the India is one of the top emerging booming economies with a steady GDP growth of about 8.5%. With the huge money inflows the risk of fraud gets increased. Recently the most accounting firm KPMG (Klynveld Peat Marwick Goerdeler) surveyed Indian Corporates and came to the conclusion that over next two years i.e. by 2010, ‘India will be a fraud Haven’. They also surveyed that 75% of frauds remains undetected.
So it becomes necessary to keep a check on financial frauds. One of the measures to keep a check on these is to get the books of accounts audited by professional auditors