How is audit defined under Indian law and why is it important?

The definition of audit given by the Institute of Chartered Accountants of India is as follows:

“Auditing is defined as a systematic and independent examination of data, statements, records, operations and performance (financial or otherwise) of an enterprise for a stated purpose. .”

One of the most significant purposes of auidting is to express a true and fair view of the company’s financial statements. This is attained through the final opinion expressed by the auditor in charge at the end of the audit process through the audit report. Audit can serve other purposes, such as:

• Helping investors know the financial health of the company;
• Helping the government know that the company is properly discharging statutory dues;
• Helping lenders evaluate the credibility of the company;
• Helping the management take note of any shortcomings in the company’s business operations; and
• Helping management improve business efficiency.

In addition, financal statements for audit in India should include:

• Balance Sheet
• Profit & Loss Account
• Cash Flow Statement
• Notes to Accounts