There is no obligation for a sole proprietor under any law to get the accounts except in case where the turnover of a proprietary business in any financial year exceeds One Hundred Lacs Rupees and gross receipt from profession exceeds Twenty-five Lacs Rupees. In both the cases, the audit of accounts is compulsory for a proprietor under Income Tax Act, 1961.
Inspite of no obligation, so many sole traders who have vast and varied expenditure prefer to get their books of accounts audited by a chartered accountant. In such case Auditor do the work of accountant as well as Auditor depending on terms of agreement. Audit of accounts is very much essential in such case where the owner of the business is sitting in a remote area and he does not have any direct control over transactions of his business.
The Auditor should get clear instructions from the client regarding the scope of his Audit Program before starting his work. It is the primary duty of an Auditor to see that all the necessary books of accounts are maintained by the client and also those books of accounts should be appropriate and accurate showing true picture of his business. Following are the main advantages of audit of sole proprietary business −
- Chances of frauds and misappropriation are minimized as accounts staff become more efficient because they know that work is to be checked by an Auditor.
- Early and easy assessment are done by the Income Tax department as the department considers the audited books of accounts as more reliable than non-audited.
- The Proprietor of business is more confident and relaxed when it comes to financial issues and he is able to contribute his time for other business activities.
- The Proprietor can take the benefit of expert advice of a Charted Accountant on financial matters to utilize his working capital in an efficient way.
- He can help in borrowing money from banks or financial institutions.
- Audited accounts can be used as evidence in court or in front of any Government official as and when required.