Internal audit
This query is : Resolved
11 May 2012
Please explain me what do you mena by the commencement of the financial year concerned with respect to criteria of internal audit.
Kindly explain me with some examples
Kindly explain me with some examples
11 May 2012
Commencement of financial means 1st April.
11 May 2012
Coomencement of financial year means starting period from 1st April..
And end of the financial year means ending on 31st march.
it means a financial year is starts from first April and it ends on 31st march.
Example: FY 2011-12 means Period from 1st April 2011 to 31st March 2012.
And end of the financial year means ending on 31st march.
it means a financial year is starts from first April and it ends on 31st march.
Example: FY 2011-12 means Period from 1st April 2011 to 31st March 2012.
11 May 2012
Comencement of financial year means starting period from 1st April..
And end of the financial year means ending on 31st march.
it means a financial year is starts from first April and it ends on 31st march.
Example: FY 2011-12 means Period from 1st April 2011 to 31st March 2012.
And end of the financial year means ending on 31st march.
it means a financial year is starts from first April and it ends on 31st march.
Example: FY 2011-12 means Period from 1st April 2011 to 31st March 2012.
11 May 2012
With respect to report about internal audit system under CARO what does commencement of financial years means?. Whether it is a next year from the year of fulfilling the criteria or the year in which we are fulfilling any one of the condition
01 August 2024
The "commencement of the financial year" is an important concept when discussing criteria for internal audit requirements, especially under provisions like the Companies (Auditor’s Report) Order (CARO) and similar regulations. Here's a detailed explanation:
### **Understanding Commencement of Financial Year**
1. **Definition:**
- The **financial year** typically refers to the accounting period of a company, usually lasting from April 1st to March 31st of the following year in India.
- **Commencement of the financial year** refers to the beginning of this accounting period, i.e., April 1st of the relevant year.
2. **Context in Internal Audit:**
- In the context of internal audit requirements, the financial year in which a company meets certain criteria (like capital or turnover thresholds) determines whether it needs to comply with specific internal audit regulations for that year.
### **Examples with Respect to Internal Audit Criteria**
#### **Example 1: Applicability of Internal Audit Under CARO**
CARO 2020, for example, applies to companies meeting certain criteria such as paid-up capital and turnover thresholds. Let's break down an example:
1. **Criteria for Internal Audit:**
- **Paid-up Capital:** ₹50 lakh or more
- **Average Annual Turnover:** ₹5 crore or more
2. **Scenario:**
- **Company A** had a paid-up capital of ₹60 lakh and an average annual turnover of ₹6 crore for the financial year 2023-24.
- **Company B** had a paid-up capital of ₹40 lakh and an average annual turnover of ₹4 crore for the financial year 2023-24.
3. **Application of Criteria:**
- **For Company A:** The company meets both criteria in the financial year 2023-24, so it must have an internal audit system in place for that financial year.
- **For Company B:** The company does not meet the criteria for the financial year 2023-24. However, if in the next financial year (2024-25), it meets the criteria, then it will need to comply with the internal audit requirements from that year onward.
### **Commencement in the Context of CARO**
When referring to the **commencement of the financial year** under CARO:
- It means the criteria need to be met **during the financial year** in question to trigger compliance requirements for that specific year.
- For instance, if a company fulfills the criteria during the financial year 2024-25, it will need to report under CARO for the financial year 2024-25.
#### **Practical Example with CARO Reporting:**
1. **Year of Compliance:**
- **Company X** meets the internal audit criteria on April 1, 2024, for the financial year 2024-25. Therefore, internal audit requirements will apply for the financial year 2024-25.
- If Company X did not meet the criteria until July 1, 2024, the requirements would still apply for the financial year 2024-25, as it was met during the financial year in question.
2. **Reporting Under CARO:**
- The CARO report will cover the financial year in which the criteria are met, so for Company X, the report will be applicable for the year 2024-25.
### **Summary**
- **Commencement of Financial Year:** Refers to the start of the accounting period, usually April 1st.
- **Internal Audit Criteria:** The financial year in which a company meets the criteria determines the applicability of internal audit requirements.
- **CARO Reporting:** The financial year in which the company fulfills the criteria is the year for which internal audit and CARO reporting requirements apply.
In essence, the commencement of the financial year is the key point to determine when internal audit requirements kick in based on whether the criteria are met within that year.
### **Understanding Commencement of Financial Year**
1. **Definition:**
- The **financial year** typically refers to the accounting period of a company, usually lasting from April 1st to March 31st of the following year in India.
- **Commencement of the financial year** refers to the beginning of this accounting period, i.e., April 1st of the relevant year.
2. **Context in Internal Audit:**
- In the context of internal audit requirements, the financial year in which a company meets certain criteria (like capital or turnover thresholds) determines whether it needs to comply with specific internal audit regulations for that year.
### **Examples with Respect to Internal Audit Criteria**
#### **Example 1: Applicability of Internal Audit Under CARO**
CARO 2020, for example, applies to companies meeting certain criteria such as paid-up capital and turnover thresholds. Let's break down an example:
1. **Criteria for Internal Audit:**
- **Paid-up Capital:** ₹50 lakh or more
- **Average Annual Turnover:** ₹5 crore or more
2. **Scenario:**
- **Company A** had a paid-up capital of ₹60 lakh and an average annual turnover of ₹6 crore for the financial year 2023-24.
- **Company B** had a paid-up capital of ₹40 lakh and an average annual turnover of ₹4 crore for the financial year 2023-24.
3. **Application of Criteria:**
- **For Company A:** The company meets both criteria in the financial year 2023-24, so it must have an internal audit system in place for that financial year.
- **For Company B:** The company does not meet the criteria for the financial year 2023-24. However, if in the next financial year (2024-25), it meets the criteria, then it will need to comply with the internal audit requirements from that year onward.
### **Commencement in the Context of CARO**
When referring to the **commencement of the financial year** under CARO:
- It means the criteria need to be met **during the financial year** in question to trigger compliance requirements for that specific year.
- For instance, if a company fulfills the criteria during the financial year 2024-25, it will need to report under CARO for the financial year 2024-25.
#### **Practical Example with CARO Reporting:**
1. **Year of Compliance:**
- **Company X** meets the internal audit criteria on April 1, 2024, for the financial year 2024-25. Therefore, internal audit requirements will apply for the financial year 2024-25.
- If Company X did not meet the criteria until July 1, 2024, the requirements would still apply for the financial year 2024-25, as it was met during the financial year in question.
2. **Reporting Under CARO:**
- The CARO report will cover the financial year in which the criteria are met, so for Company X, the report will be applicable for the year 2024-25.
### **Summary**
- **Commencement of Financial Year:** Refers to the start of the accounting period, usually April 1st.
- **Internal Audit Criteria:** The financial year in which a company meets the criteria determines the applicability of internal audit requirements.
- **CARO Reporting:** The financial year in which the company fulfills the criteria is the year for which internal audit and CARO reporting requirements apply.
In essence, the commencement of the financial year is the key point to determine when internal audit requirements kick in based on whether the criteria are met within that year.
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