NM Monjee university Question and answers

  1. External Audit: This is an independent evaluation performed by an external auditor to assess the fairness and accuracy of an NGO’s financial statements. It ensures the financial information presented by the NGO is reliable.
  2. Internal Audit: Conducted by the NGO’s own staff or hired professionals, this audit examines the organization’s internal controls, policies, and procedures. It helps identify areas for improvement in efficiency and risk management.
  3. Donor Audit: This audit is conducted by a donor or their appointed auditor to verify that the NGO is using the donated funds according to the agreed-upon terms and conditions. It ensures the NGO is using the funds for their intended purpose.
  4. Investigative Audit: This audit is triggered by a suspicion of wrongdoing within the NGO. It involves a deep dive to uncover evidence of financial mismanagement or other irregularities.

In India, section 44AB of the Income Tax Act mandates a tax audit for certain taxpayers. This audit is essentially an inspection of your business accounts by a chartered accountant to verify their accuracy and ensure compliance with tax regulations.

Who needs a tax audit under section 44AB?

  • Businesses with a gross turnover exceeding Rs. 1 crore in the preceding financial year.
  • Professionals (like doctors, lawyers, consultants) with gross receipts exceeding Rs. 50 lakh in the preceding financial year.

What happens during a tax audit?

A chartered accountant will examine your books of accounts, including sales and purchase records, bank statements, and investment documents. They will verify if your income and expenses are accurately reflected and supported by proper documentation.

What is the purpose of a tax audit under section 44AB?

There are two main objectives:

  • Ensure accuracy and compliance: The audit verifies that you have reported your income and claimed deductions correctly following tax rules.
  • Maintain proper records: It encourages you to maintain proper books of accounts, which simplifies future tax filing and reduces the risk of errors.

What are the consequences of non-compliance?

If you fail to get a tax audit when mandatory under section 44AB, you may face penalties, including:

  • A fine of up to 0.5% of your turnover, subject to a maximum of Rs. 1,50,000.
  • Disallowance of certain claimed expenses.
  • Interest on unpaid taxes and penalties.
  • In severe cases, scrutiny assessment, prosecution, and even imprisonment.

By complying with section 44AB, you ensure transparency in your financial activities and avoid potential tax-related issues.

Indian banks, like any financial institution, face a variety of risks that can impact their profitability and stability. Here’s a breakdown of some key ones:

  1. Credit Risk: This is the risk of borrowers defaulting on loans. It’s a major concern as unpaid loans translate to losses for the bank. Inadequate assessment of borrower creditworthiness, overdependence on collateral, and economic downturns can all exacerbate credit risk.
  2. Market Risk: Fluctuations in interest rates, stock prices, and foreign exchange rates can affect a bank’s financial performance. For instance, rising interest rates could increase a bank’s borrowing costs, squeezing profits.
  3. Liquidity Risk: This is the risk of not having enough cash on hand to meet its short-term obligations. Unexpected withdrawals or loan defaults can create liquidity issues.
  4. Operational Risk: This arises from internal failures or external events. It includes fraud, human error, technology glitches, and natural disasters. Weak internal controls, outdated systems, and inadequate cybersecurity measures can heighten operational risk.
  5. Business Risk: This refers to the overall risk associated with a bank’s business model and strategies. Competition, technological changes, and regulatory shifts can all be business risks. For example, the rise of fintech companies could threaten traditional banking models.

These are just some of the major risks faced by Indian banks. The Reserve Bank of India (RBI) plays a crucial role in ensuring banks proactively manage these risks through regulations and guidelines. By implementing robust risk management practices, banks can strive for financial stability and protect depositors’ interests.

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