Statutory audit companies act

Statutory audit under Companies Act 2013 defines that every business must undergo auditing of their accounts for every financial year (April 1 – March 31), despite their capital or turnover. This Audit is required to express an opinion thereon, which helps report and pick an accurate and honest view of a company’s financial position and operating result.

The two different types of Statutory Audit under Companies Act 2013 includes

Tax Audits:

Tax audit is an investigation of any business or profession accounts carried out by external taxpayers from an income tax viewpoint. It makes the process of income computation for filing of return of income easier.

Objectives of Tax Audit

• A tax audit ensures proper maintenance and correctness of books of accounts and certification of the same by a tax auditor
• Disclosing observations/discrepancies monitored and noted by tax auditor after a well organizaed examination of the books of accounts
• To notify defined details like tax depreciation, compliance with various provisions of income tax law, etc.

Statutory audit of companies:

To perform statutory audit of companies, the company directors appoints a third-party auditor as the first step. Auditors are appointed at annual general meetings (AGM) of various companies. The appointed auditor remains the same until the next AGM. Under the Companies Act, 2017, auditors can be appointed for 5 years, except in individual and partnership firms where the appointment period is a maximum of one or two terms. A third-party chartered accountant or accounting firm can be appointed as the auditor of the company.

The following list of peoples cannot be appointed as the auditor of the company;

• An employee of the company.
• Partner of a company employee.
• Anyone owning an amount more than ₹1000/- to the company.
• Anyone who holds the company’s securities or shares.

Statutory audit applicability

All companies that want their books audited would fall under statutory audit applicability, regardless of the nature of their business, by appointing a statutory auditor. However, the below-mentioned criteria are important for certain companies for statutory audit applicability:

• Limited Liability Partnership: A statutory audit is considered for LLP when the annual turnover exceeds ₹40 lakhs or if paid-up capital exceeds ₹25 lakhs.
• Proprietorship: A Proprietorship is applicable when the annual turnover exceeds ₹1 crore for a business or if annual gross receipts exceed ₹25 lakhs for a professional service. This will be audited by a qualified charted accountant.
• Private Company/ Public Company: Statutory audit is a mandatory choice regardless of profits, or losses incurred, and yearly turnover.
• Individual/HUF/Partnership Firm: Zero statutory audit applicability for these kinds of firms.

Statutory audit report

The statutory audit report is responsible to deliver the final analysis of the organization’s finances and accounts to the Indian government. The statutory audit report is the outcome of audits authorized by law. Knowledgeable and qualified external chartered accountants perform statutory audits and work as independent parties.

Statutory audit report format

A statutory audit report format includes:

• Statutory audit report title: Displays that it was created by a third party or an independent statutory auditor
• Statutory audit report addressee: Depicts the person or organization to whom the report is passed.
• Responsibility of statutory auditor: Prepares an honest report that includes the state of the company’s financial condition, through the audit of financial statements.
• Opinion of statutory auditor: Presents a neutral opinion of the financial statements.
• The premise of the auditor’s Opinion: The auditor should state the reason behind the auditor’s opinion, by sharing facts from the financial statements of the company.
• Other responsibilities of the auditor: In some cases, auditors deal with other responsibilities, such as reporting legal and regulatory requirements.
• Signature of statutory auditor: The signature of the auditor who audits
• The location where the report is signed: This denotes the place where the auditor prepares and signs the statutory audit report.
• Report’s Date: Finally, the date when the auditor signs the statutory audit report.

How to conduct the statutory audit?

In order to confirm the company’s current financial health, the statutory audit procedure starts with an examination of the internal auditor’s report. The decision to adopt the statutory audit procedure for recording information about the company’s sales and purchases is determined after comparing the internal auditor’s report with the statutory audit report from the previous year. This clarifies how the business’s accounting department tracks the financial transactions related to sales and purchases. See the following steps for further information on the statutory audit process:

• The statutory auditor evaluates the internal audit report for the latest financial year.
• The statutory auditor then validates that senior management has acted in accordance with the internal auditor’s recommendations and conclusions, particularly with regard to the reported discrepancies.
• The statutory auditor then reviews the statutory audit report from the prior fiscal year to evaluate its summary and findings.
• Additionally, the process used by the company’s auditor or accounts department aids the statutory auditor in determining the statutory audit procedure to be followed for recording information on Sales and purchases transactions.
• The statutory auditor’s next move is to acquaint themselves with the company’s accounting software.
• Before endorsing the system, the statutory auditor confirms the transactions by comparing the software’s entries for purchases and sales with the invoice.
• The statutory auditor then confirms the company’s procedure of expenditure approval and attests to it.
• For business purchases as well, the same process is used.
• The auditor can then ask about the company’s procedures involving sales and purchases, brand partnerships, franchises, and marketing alliances.