Statutory Audit and Tax Audit: Understanding the Difference

The terms "statutory audit" and "tax audit" are sometimes used interchangeably, but they serve different purposes under different laws.

Statutory audit: A statutory audit is an audit required by law, for example, under the Companies Act for companies. Its purpose is to examine whether the financial statements present a true and fair view of the entity's financial position. It is carried out by an independent Chartered Accountant and results in an audit report.

Tax audit: A tax audit is required under the Income Tax Act for certain taxpayers whose turnover or receipts cross specified thresholds. Its focus is on verifying that proper records have been maintained and that relevant provisions of the income tax law have been complied with, reported in the prescribed form.

Key differences: The two audits arise under different statutes, apply to different entities and thresholds, and produce different reports. A single business may be subject to both in the same year, or to only one, depending on its structure and turnover.

This note is for general information only. Whether an audit applies to a particular entity depends on the relevant law and the facts of each case.