Who can do GST Audit? 

Section 35 (5) of CGST Act 2017

Every registered person whose turnover during a financial year exceeds the prescribed limit shall get his accounts audited by a chartered accountant or a cost accountant and shall submit a copy of the audited annual accounts, the reconciliation statement under sub-section (2) of section 44 and such other documents in such form and manner as may be prescribed

Rule 80(3) of CGST Rules 2017

Every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C, electronically through the common portal either directly or through a Facilitation Centre notified by the Commissioner.

Section 44 (2) of CGST Act 2017

Every registered person who is required to get his accounts audited in accordance with the provisions of sub-section (5) of section 35 shall furnish, electronically, the annual return under sub-section (1) along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and such other particulars as may be prescribed.

Who can do GST audit

Combined reading of the section 35(5), 44(2) of CGST Act 2017  along with forms notified, gives rise to two situations,

Entities not required to be audited under any other statute

 In this  case audit has to be carried out in terms of Section 35(5) and reconciliation statement to be drawn under Section 44(2) duly certified.

Entities required to be audited under any other statutes :-

If entities are required to be audited under any other statutes like Companies Act, Income-tax Act, Co-operative Societies Act, etc., When the records of the entity is audited under any other statute, the reconciliation statement can be drawn up by the same auditor, who also certifies the same if auditor happens to be Chartered Accountant.

Alternatively, the reconciliation statement can be drawn up and certified by another Chartered Accountant or Cost Accountant.

Audit by auditors in Full Time practice only

Section 35(5) read with Section 44(2) of the CGST Act and the corresponding Rule 80(3) of the CGST Rules   do not stipulate that the statutory auditor appointed under the Companies Act or other similar statutes should only perform the audit. As such, the audit can be conducted either by the statutory auditor or by any other chartered accountant who is in full time practice or by a Firm of chartered accountants.

Any  member in part time practice cannot perform an audit under the GST Laws.

Audit by Joint auditors

It is possible for the registered person to appoint two or more chartered accountants as joint auditors under the GST Laws in which case the audit report would have to be signed by all the joint auditors. In case of disagreement, they can give their report separately.

Audit of different Branches by separate auditors

It is also possible for a registered person to appoint separate auditor(s) under the GST Laws for conducting the audit in respect of any distinct person / branch / division / additional place of business / business vertical etc., [within the same State or Union Territory or in different States or Union Territories] and there could be separate auditor(s) for a principal place of business.

In such a case, the branch auditor(s) would have to submit report(s) / certificates to the management or, if directed, to the auditor(s)  appointed for conducting the audit for the principal place of business and such reports would have to be considered and dealt with appropriately by such auditor(s) while consolidating the report for the business as a whole. 

Can the Auditor be relative of Registered Person?

The GST Laws do not prohibit a relative or an employee of the registered person being appointed as an auditor under Section 35(5) read with Section 44(2) of the CGST Act and the corresponding Rule 80(3) of the CGST Rules. It may, however, be noted that as per the decision of the Council (reported in the Code of Conduct under clause (4) of Part I of Second Schedule), a chartered accountant who is in the employment of a concern or in any other concern under the same management cannot be appointed as auditor of that concern.

Further, as per the decision of the Council, a member who is not in full time practice cannot carry out attest function on and after the 1st of April 2005. Therefore, an employee of the registered person or an employee of a concern under the same management cannot audit the accounts of the registered person under Section 35(5) read with Section 44(2) of the CGST Act and the corresponding Rule 80(3) of the CGST Rules.

It may also be noted that under the Second Schedule to the Chartered Accountants Act, if a member furnishes / gives an audit report in the case of a concern in which he and / or his relatives have substantial interest, it would be necessary for him to disclose his interest in the audit report. This is equally applicable to audit under section 35(5) read with Section 44(2) of the CGST Act and the corresponding Rule 80(3) of the CGST Rules.

 Whether Internal auditor can do GST Audit ?

In relation to audit under Companies Act, the Council has clarified that the statutory auditor of the Company cannot be its internal auditor. The same principle can be applied in respect of an audit under the GST Laws.

 ICAI issued announcement is made on 28th September 2018 clarifying that the council of the Institute of Chartered Accountants of India, in its 378th meeting clarified that “an Internal Auditor of an entity cannot undertake GST Audit of the same entity. This is based on similar view taken in the context of audit under Income-tax Act.

Audit by CA appointed as Tax Consultant of registered person ?

A Chartered Accountant / firm of Chartered Accountants, appointed as tax consultant/s of the registered person can conduct audit under Section 35(5) read with Section 44(2) of the CGST Act and the corresponding Rule 80(3) of the CGST Rules

Audit by CA if he writes Books of Accounts of Registered person ?

Guidance note on independence of Auditors mentions that the member is expected to be similarly independent in the discharge of his duties as a tax consultant or as a financial adviser. It is set out that members are not permitted to write the books of accounts of their auditee clients.

In the context of GST law question arises where the scope of work involved, advice, preparation of GST returns would it affect independence of the auditor whereby they are restricted to carryout statutory audit.  ?

Audit by CA if indebted to Registered person ?

A chartered accountant should not accept the audit of a registered person to whom he is indebted for more than rupees ten thousand.

Reference can be made to compilation of Ethical Standard Board as provided in Appendix 6, whereby a member of the Institute of Chartered Accountants of India shall be deemed to be guilty of professional misconduct if he accepts appointment as auditor of a concern while he is indebted to the concern or has given any guarantee or provided any security in connection with the indebtedness of any third person to the concern, for limits fixed in the statute and in other cases for amount exceeding rupees ten thousand. For this purpose, the limit of Rs. 10,000/- shall be the aggregate amount in respect of the proprietor and/or the partner/s of the firm of chartered accountants. 

Can statutory auditor of Public Sector undertaking do its GST audit ?

The Council has issued a Notification No. 1-CA(7)/60/2002 dated 8th March 2002 effective 1st April 2002 (Appendix 7) whereby a member of the Institute in practice shall be deemed to be guilty of professional misconduct, if he accepts the appointment as statutory auditor of Public Sector Undertaking/ Government Company/Listed Company and other Public Company having turnover of Rs. 50 crores or more in a year and accepts any other work or assignment or service in regard to the same undertaking/Company on a remuneration which in total exceeds the fee payable for carrying out the statutory audit of the same undertaking/Company.

The above restrictions shall apply in respect of fees for other work or service or assignment payable to the statutory auditors and their associate concerns put together. As per the said notification, the term “other work(s)” or “service(s)” or “assignment(s)” shall include Management Consultancy and all other professional services permitted by the Council pursuant to section 2(2)(iv) of the Chartered Accountants Act, 1949 but shall not include:—

(i) audit under any other statute;

(ii) certification work required to be done by the statutory auditor. and

(iii) any representation before an authority.

Since the obligation for audit has been specified in Section 35(5) read with Section 44(2) of the CGST Act and the corresponding Rule 80(3) of the CGST Rules, it would be considered as an audit under any other statute for the purpose of this notification and thus the above restriction shall not apply in respect of audit fees.

 [ Reference Guide as per ICAI Technical guide on GST Annual return and GST Audit ]

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