What is a Statutory Audit?
A statutory audit is a legal review required to check the accuracy of a company’s or government organization financial statements and records for a fiscal year. It is mandated and regulated by laws and statutes. It is also called as financial audit. It is one of the main types of audit that happens in India. The Companies Act, 2013 regulates statutory audit in India. It is done by chartered accountants who have no internal operations with the organization being audited. It is a source to analyze the financial resources of an organization. The main motive to do a statutory audit is to know whether an organization provides with a fair and accurate representation of its financial status by examining it’s information such as financial transactions, bank balances, bookkeeping and accounts record. It is to check whether the financial funds were used effectively and efficiently and handled in a proper way.
Who are Subjected to Statutory Audit?
The institutions or organization that must go through a statutory audit are:
- Public companies.
- Brokerage business firms.
- Companies dealing with insurances.
- Investment firms.
- LLPs, proprietor business etc.
- Certain charity organizations.
- Companies having an employee base for more than 50.
Statutory Audit Process:
The statutory audit happens in a proper manner and step by step in order to get accuracy at every stage of the whole process. The time duration taken by the auditor to complete the whole audit depends on the purpose and scope of the audit to be done. The steps involve:
- The auditor, prior to starting the statutory audit gets to understand the business through the books of accounts and financial statements that were prepared the business entity going through the audit.
- The statutory auditor makes an audit plan to verify the data provided in the financial statements and records. They also try to obtain samples and then verify the information used to prepare the accounts.
- On the basis of the collected information during the audit the statutory auditor prepares an audit report and expresses his/her views whether the financial statements are true and fair or not.
Requirements for a Statutory Audit:
The conditions that must be fulfilled in order to have a statutory audit are as follows-
- All the companies irrespective of the business’ nature and turnover for sales must appoint a statutory auditor.
- All the LLPs having a turnover above forty lakhs or have contributed capital of above twenty five lakhs.
- Proprietorship entities having a sales turnover of above one crore or their annual gross receipts are above twenty five lakhs.
Provisions Related to Statutory Audit:
The provisions regulating the statutory audits are being provided in Chapter X- Audits and Auditors of the new Companies Act, 2013. These provisions are:
- Section 139- deals with appointment of auditors.
- Section 140- deals with removal, resignation of auditors and giving of special notices.
- Section 141- deals with eligibility, qualifications and disqualifications of auditors.
- Section 142- deals with remuneration of auditors.
- Section 143- deal with powers and duties of auditors and auditing standards.
- Section 144- deals with certain services not rendered by the auditor.
- Section 145- deals with signing of audit reports etc. by the auditor.
- Section 146- deals with auditors attending the general meeting.
- Section 147- deals with punishment for contravention.
- Section 148- deals with central government specifying audit of items of cost in respect to certain companies.