Statutory Audit

Statutory Audit in India is governed by the Companies Act, 2013 and is conducted in accordance with the Standards on Auditing (SAs) issued by the Institute of Chartered Accountants of India (ICAI). It is mandatory for all companies registered under the Companies Act, regardless of their size or turnover.

Importance of Statutory Audit

Statutory audit provides assurance to shareholders, investors, creditors, and other stakeholders about the accuracy and reliability of a company's financial statements. It helps detect errors, prevent fraud, ensure compliance with laws and regulations, and improve internal control systems.

Key Components of Statutory Audit

• Financial Statement Analysis
• Compliance with Accounting Standards
• Verification of Assets and Liabilities
• Revenue and Expense Verification
• Internal Control Evaluation
• Regulatory Compliance Assessment
• Risk Assessment
• Fraud Detection and Prevention

Statutory Audit Process

The statutory audit process typically involves planning, risk assessment, evidence gathering, evaluation, and reporting. Auditors follow a systematic approach to ensure comprehensive examination of financial records and compliance with applicable laws and standards.

Documents Required for Statutory Audit

• Financial Statements (Balance Sheet, Profit & Loss Account, Cash Flow Statement)
• Books of Accounts and Ledgers
• Bank Statements and Reconciliations
• Fixed Asset Registers
• Legal Documents and Contracts
• Minutes of Board Meetings
• Tax Returns and Compliance Documents
• Previous Audit Reports

Stages in Statutory Audit

The statutory audit process involves these key stages:

Appointment of Statutory Auditors

• First auditors are appointed by the Board of Directors within 30 days of incorporation
• Subsequent auditors are appointed by shareholders at the Annual General Meeting
• Auditors are appointed for a term of five years, subject to ratification at each AGM
• For listed companies, auditor rotation is mandatory after a specified period
• Auditors must be qualified Chartered Accountants or CA firms
• Auditors must maintain independence from the company being audited
• Appointment details must be filed with the Registrar of Companies
• Casual vacancies in the office of auditor are filled by the Board or shareholders

Conclusion

Statutory audit plays a crucial role in ensuring transparency, accountability, and reliability in corporate financial reporting. It provides stakeholders with assurance that the financial statements present a true and fair view of the company's financial position and performance, thereby fostering trust in the financial ecosystem and supporting informed decision-making.