Statutory Audit Services in India

Statutory Audit Services in India

EzyBiz India provides professional coordination and support for Statutory Audit Services in India for Indian companies, foreign-owned subsidiaries, joint ventures, startups and established business organisations.

A statutory audit is an independent examination of a company’s financial statements, accounting records and related disclosures to determine whether they present a true and fair view in accordance with applicable financial reporting requirements and Indian laws.

EzyBiz India assists businesses in preparing for statutory audits, organising accounting records, preparing audit schedules, resolving reconciliation differences and coordinating the audit process. Statutory audits, attestations and audit reports requiring an eligible practising Chartered Accountant are undertaken through our network partner Chartered Accountant firm.

Our approach is designed to help companies complete their statutory audits efficiently, address accounting and compliance issues in advance and provide accurate financial information to shareholders, management, lenders, investors and regulatory authorities.

This service forms part of our broader Audit and Assurance Services in India for Indian and foreign-owned businesses.

What Is a Statutory Audit?

A statutory audit is an audit required under an applicable law or regulation. In the case of companies incorporated in India, statutory audits are generally conducted under the Companies Act, 2013.

During a statutory audit, the auditor examines the financial statements and supporting accounting records of the company and evaluates whether:

• the financial statements have been prepared in accordance with applicable accounting standards;
• the books of account contain complete and accurate records;
• material transactions are properly recorded and disclosed;
• assets and liabilities are appropriately recognised and valued;
• internal financial controls relevant to financial reporting are adequate;
• applicable statutory and regulatory disclosures have been made; and
• the financial statements present a true and fair view of the company’s financial position and performance.

The scope and depth of the audit depend on the nature, size, industry, organisational structure and regulatory requirements of the business.

For a detailed explanation of the legal requirement, auditor appointment and audit process, read our guide on Statutory Audit in India: Meaning and Applicability.

Who Requires a Statutory Audit in India?

Every company incorporated under the Companies Act, 2013 is generally required to have its financial statements audited by an eligible practising Chartered Accountant, regardless of its turnover, profitability or level of business activity.

Statutory audit requirements ordinarily apply to:

• private limited companies;
• public limited companies;
• wholly owned subsidiaries;
• foreign-owned Indian companies;
• joint venture companies;
• one person companies;
• Section 8 companies;
• companies with no or limited business activity;
• startups incorporated as companies; and
• other entities where an audit is prescribed under an applicable law.

The statutory audit requirement for companies is separate from the requirement for Tax Audit & Certification Services in India under the applicable income-tax law. A company may require a statutory audit even where a tax audit is not applicable, while some companies may be subject to both requirements.

The appointment, eligibility, independence, rotation and reporting responsibilities of the statutory auditor are governed by the applicable provisions of the Companies Act, 2013 and professional standards.

Statutory Audit Services for Indian and Foreign-Owned Companies

We support a diverse range of businesses requiring statutory audit services in India, including domestic companies and Indian subsidiaries of overseas groups.

Our support covers companies operating in sectors such as:

• manufacturing;
• trading and distribution;
• consulting and professional services;
• information technology;
• logistics and supply-chain services;
• e-commerce;
• financial and business services;
• hospitality;
• healthcare;
• construction and real estate;
• export and import businesses; and
• multi-location business operations.

For foreign-owned Indian subsidiaries, the statutory audit process may also require coordination with the overseas parent company, group auditors, finance teams and management located outside India.

We assist in aligning Indian financial records with group reporting requirements, resolving intercompany reconciliation matters and facilitating timely sharing of audit information.

Our Statutory Audit Service Approach

A well-managed statutory audit requires more than examining financial statements at the end of the year. It requires advance planning, proper documentation, timely reconciliations and coordination between management, the accounting team and the statutory auditor.

Our approach generally includes:

Audit Planning and Initial Discussion

At the beginning of the engagement, we understand the company’s:

• business model;
• operational structure;
• industry;
• accounting systems;
• applicable financial reporting framework;
• group reporting requirements;
• significant transactions;
• regulatory environment; and
• previous audit observations.

This helps identify areas requiring additional attention and enables the audit to be planned efficiently.

Preparation of Audit Requirements List

A structured audit requirements list is prepared based on the company’s activities and financial statements.

The requirements may include:

• trial balance;
• general ledger;
• financial statements;
• bank reconciliations;
• customer and vendor balances;
• fixed-asset register;
• inventory records;
• loan documents;
• statutory returns;
• tax reconciliations;
• agreements;
• board resolutions;
• related-party details; and
• supporting documents for significant transactions.

Review of Financial Statements and Schedules

Before submission to the statutory auditor, financial statements and major supporting schedules may be reviewed for consistency, completeness and reconciliation.

This reduces avoidable audit queries and helps management identify accounting or disclosure issues at an early stage.

Coordination With the Statutory Auditor

We assist the management and accounts team in coordinating with the statutory auditor, compiling requested documents, preparing explanations and tracking outstanding audit requirements.

Audit opinions, attestations and statutory audit reports are issued independently by the eligible network partner Chartered Accountant firm in accordance with applicable professional and legal requirements.

Scope of Statutory Audit Services

The scope of a statutory audit depends on the company’s financial statements, business operations and regulatory requirements.

The audit process may cover the following areas:

Review of Books of Account

The auditor examines whether proper books of account and supporting records have been maintained and whether significant transactions are accurately recorded.

The review may include:

• sales and service income;
• purchases;
• expenses;
• payroll;
• fixed assets;
• inventory;
• borrowings;
• investments;
• receivables;
• payables;
• statutory liabilities; and
• related-party transactions.

Examination of Financial Statements

The balance sheet, statement of profit and loss, cash-flow statement, statement of changes in equity and accompanying notes are examined in accordance with the applicable financial reporting framework.

The objective is to determine whether the financial statements are internally consistent, supported by the books of account and appropriately presented.

Verification of Assets and Liabilities

The statutory audit may include verification of:

• bank balances;
• trade receivables;
• trade payables;
• loans and advances;
• borrowings;
• property, plant and equipment;
• inventory;
• investments;
• statutory liabilities;
• provisions; and
• contingent liabilities.

External confirmations, management representations and supporting agreements may be required depending on the nature and materiality of the balances.

Review of Income and Expenses

Material income and expenditure items are examined to determine whether they have been recorded in the correct accounting period and supported by appropriate documentation.

The review may also consider unusual transactions, year-end entries, provisions, estimates and expenses of a capital or exceptional nature.

Review of Internal Financial Controls

Internal financial controls are an important part of reliable financial reporting. During the statutory audit, the auditor may evaluate whether the company has appropriate controls for recording, authorising, processing and reporting financial transactions.

The review may cover controls relating to:

• revenue recognition and invoicing;
• purchases and vendor payments;
• bank transactions;
• payroll processing;
• inventory movement;
• fixed assets;
• journal entries;
• user access to accounting systems;
• statutory payments;
• financial closing procedures; and
• preparation of financial statements.

Where reporting on internal financial controls is applicable, the statutory auditor evaluates the design and operating effectiveness of relevant controls and reports any material weaknesses identified.

EzyBiz India assists management in organising process documents, control narratives, reconciliations and supporting evidence required for such review. Businesses seeking a wider review of operational processes, risk management and internal controls may also explore our Internal Audit & Risk Advisory Services in India.

Review of Companies Act Compliance

A statutory audit may involve review of financial and corporate matters governed by the Companies Act, 2013.

This may include examination of:

• maintenance of statutory books and records;
• share capital transactions;
• allotment and transfer of securities;
• borrowings and creation of charges;
• loans, guarantees and investments;
• related-party transactions;
• managerial remuneration;
• dividend declarations;
• deposits;
• board and shareholder approvals;
• corporate social responsibility, where applicable;
• compliance with accounting and disclosure requirements; and
• filing of relevant forms with the Registrar of Companies.

The exact scope depends on the transactions undertaken by the company during the financial year.

Where supporting corporate records are incomplete or inconsistent with the accounting records, the matter may result in additional audit queries or reporting implications. Early reconciliation of secretarial and financial records helps reduce such issues. Companies requiring assistance with statutory registers, board documentation and ROC filings may explore our Corporate Secretarial & ROC Compliance Services.

Related-Party Transactions Review

Related-party transactions generally require careful examination because they may involve additional approval, pricing and disclosure requirements.

The audit review may cover:

• identification of related parties;
• transactions with directors, shareholders and group companies;
• intercompany purchases and sales;
• management and support-service charges;
• loans and advances;
• guarantees;
• reimbursement of expenses;
• transfer of assets;
• outstanding balances;
• approval by the board or shareholders, where required; and
• disclosure in the financial statements.

For foreign-owned companies, the review may also involve reconciliation of transactions with overseas parent companies, fellow subsidiaries and associated enterprises.

Management should maintain a complete related-party list and ensure that transactions recorded in the books are consistent with agreements, approvals and financial-statement disclosures.

Review of Statutory Dues and Regulatory Liabilities

The statutory auditor may examine whether statutory liabilities have been properly recorded, reconciled and deposited within the prescribed timelines.

This may include:

• goods and services tax;
• tax deducted at source;
• provident fund;
• employee state insurance;
• professional tax;
• labour welfare fund;
• income-tax liabilities;
• customs duties;
• employee-related statutory contributions; and
• other applicable government dues.

The review may include reconciliation of statutory returns with the books of account, verification of challans and identification of overdue or disputed amounts.

Any significant delay, default or unresolved difference may require disclosure in the financial statements or reporting by the statutory auditor. For wider assistance with income tax, GST and other regulatory matters, businesses may also review our Tax & Regulatory Services.

Review of Revenue Recognition

Revenue is often a significant audit area because it directly affects the company’s reported financial performance.

The audit review may consider:

• nature of goods or services supplied;
• customer contracts;
• delivery and performance obligations;
• invoicing terms;
• cut-off at the financial year-end;
• unbilled revenue;
• advances from customers;
• credit notes;
• discounts;
• export revenue;
• related-party sales; and
• revenue recognised over a period of time.

The auditor may test selected transactions and examine whether revenue has been recognised in the correct period and in accordance with the applicable accounting framework.

Businesses with complex contracts, milestone billing, subscription arrangements, export transactions or multiple revenue streams may require more detailed documentation.

Review of Purchases and Expenses

Purchases and expenses are examined to determine whether they are genuine, properly authorised, accurately recorded and supported by appropriate documents.

The review may cover:

• purchase invoices;
• service agreements;
• purchase orders;
• goods-received records;
• vendor approvals;
• expense reimbursements;
• employee claims;
• professional fees;
• repairs and maintenance;
• travel expenses;
• marketing expenses;
• provisions and accruals;
• prepaid expenses; and
• year-end cut-off.

The auditor may also assess whether any capital expenditure has been incorrectly charged as a revenue expense or whether any expense has been recorded in the wrong financial year.

Inventory and Cost of Goods Review

For manufacturing, trading and distribution companies, inventory may be one of the most significant areas of the statutory audit.

The audit may include review of:

• raw materials;
• work in progress;
• finished goods;
• traded goods;
• consumables;
• goods in transit;
• slow-moving stock;
• obsolete stock;
• damaged inventory;
• inventory valuation;
• physical stock verification; and
• reconciliation of stock records with the books.

The statutory auditor may attend or review the company’s physical inventory-verification process and perform sample checks.

Management should maintain reliable inventory records and document the basis of valuation, write-downs and provisions for slow-moving or obsolete stock.

Fixed Assets and Capital Expenditure Review

The statutory audit may include examination of property, plant and equipment and other capital assets recorded by the company.

The review may cover:

• purchase invoices;
• asset capitalisation;
• date when the asset was ready for use;
• depreciation;
• useful life;
• location of assets;
• asset identification;
• disposals;
• impairment;
• capital work in progress;
• borrowing costs;
• physical verification; and
• reconciliation with the fixed-asset register.

The auditor may also examine whether repairs or operating expenses have been incorrectly capitalised, or whether capital expenditure has been charged to the statement of profit and loss.

Bank, Cash and Borrowing Review

Cash, bank balances and borrowings are key audit areas because they directly affect liquidity and financial position.

The audit may include:

• bank statements;
• bank reconciliations;
• balance confirmations;
• fixed deposits;
• restricted bank balances;
• cash balances;
• loan agreements;
• repayment schedules;
• interest calculations;
• security documents;
• charge registrations;
• covenant compliance; and
• classification of current and non-current borrowings.

Unreconciled bank entries, old outstanding cheques, unidentified receipts and loan-condition breaches should be resolved before completion of the audit.

Trade Receivables and Trade Payables Review

The statutory auditor may examine whether customer and vendor balances are accurate, recoverable and properly classified.

The review may include:

• ageing analysis;
• balance confirmations;
• subsequent receipts and payments;
• disputed balances;
• credit notes;
• provisions for doubtful debts;
• advances;
• debit and credit balances;
• related-party balances; and
• foreign-currency balances.

Long-outstanding or unreconciled balances may require adjustment, provision, write-off or additional disclosure.

Management should review receivable and payable ageing before the audit and resolve material differences with customers and vendors.

Provisions, Estimates and Contingent Liabilities

Financial statements often include estimates and provisions based on management judgement.

The auditor may review:

• provision for employee benefits;
• provision for doubtful debts;
• warranty obligations;
• tax provisions;
• litigation;
• contractual claims;
• expected losses;
• impairment;
• onerous contracts; and
• contingent liabilities.

Management may be required to provide supporting calculations, legal opinions, assumptions and representations.

Where uncertainty is significant, appropriate disclosure may be required in the notes to the financial statements.

Fraud and Management Override Considerations

Statutory auditors are required to consider the risk of material misstatement arising from fraud.

The audit may therefore include procedures relating to:

• unusual journal entries;
• related-party transactions;
• management estimates;
• revenue recognition;
• unexplained payments;
• fictitious vendors;
• unauthorised transactions;
• diversion of funds;
• override of internal controls; and
• transactions outside the ordinary course of business.

Management should ensure that significant transactions are properly authorised, documented and supported by a clear commercial rationale.

The statutory audit is not designed to detect every instance of fraud. However, material fraud risks and suspicious transactions may require additional audit procedures and reporting.

Statutory Audit Support for Foreign-Owned Subsidiaries

Foreign-owned Indian subsidiaries often face additional reporting and coordination requirements.

Our support may include:

• coordination with the overseas parent company;
• preparation of group reporting schedules;
• intercompany balance reconciliation;
• alignment of local books with group reporting requirements;
• explanation of Indian accounting and statutory requirements;
• coordination with group auditors;
• review of foreign-currency balances;
• assistance with related-party documentation;
• preparation of management representations; and
• tracking of audit queries across time zones.

Indian statutory financial statements may differ from group-management accounts because of local accounting, legal and disclosure requirements. We help management identify and explain these differences.

Statutory Audit Methodology

A structured audit process helps improve efficiency, accountability and timely completion.

1. Preliminary Understanding

The business, accounting environment, major transactions, ownership structure and regulatory requirements are understood.

2. Risk Assessment

Material financial-statement areas and significant risks are identified based on the nature and complexity of the business.

3. Audit Planning

The audit scope, timelines, information requirements and responsibilities of the management and audit teams are established.

4. Review of Internal Controls

Relevant financial and operational controls are reviewed to understand how transactions are initiated, authorised, recorded and reported.

5. Substantive Audit Procedures

Selected balances and transactions are tested through supporting documents, confirmations, reconciliations, analytical procedures and other audit evidence.

6. Resolution of Audit Queries

Management explanations, supporting documents and proposed accounting adjustments are reviewed and resolved.

7. Financial-Statement Review

The financial statements and notes are reviewed for compliance, consistency, classification and disclosure.

8. Management Representations

Formal management representations may be obtained regarding the completeness and accuracy of the information provided.

9. Audit Completion and Reporting

After completion of the audit procedures, the eligible network partner Chartered Accountant firm independently determines the appropriate audit opinion and issues the statutory audit report.

Types of Statutory Audit Reports

The statutory auditor may issue different types of audit opinions depending on the audit findings.

Unmodified Opinion

An unmodified opinion is issued when the financial statements present a true and fair view in all material respects in accordance with the applicable financial reporting framework.

Qualified Opinion

A qualified opinion may be issued where a material issue exists, but its effect is not considered pervasive to the financial statements.

Adverse Opinion

An adverse opinion may be issued where material misstatements are both significant and pervasive.

Disclaimer of Opinion

A disclaimer may be issued where the auditor is unable to obtain sufficient appropriate audit evidence and the possible effects may be material and pervasive.

The type of opinion is determined independently by the statutory auditor based on the audit evidence and applicable professional standards.

Common Issues Identified During Statutory Audits

Common matters that may delay or affect a statutory audit include:

• incomplete accounting records;
• unreconciled bank accounts;
• differences in customer or vendor balances;
• missing invoices or agreements;
• incomplete fixed-asset registers;
• unresolved inventory differences;
• incorrect revenue cut-off;
• old advances and deposits;
• unrecorded statutory liabilities;
• delayed tax or statutory payments;
• related-party transactions without proper documentation;
• unsupported provisions;
• non-compliance with accounting standards;
• inconsistencies between secretarial and financial records;
• incomplete board approvals; and
• inadequate financial-statement disclosures.

Identifying these matters before the audit begins can reduce delays and improve the quality of financial reporting.

Documents Required for Statutory Audit

The documents required depend on the company’s operations and financial statements. A typical list may include:

Financial and Accounting Records

• trial balance;
• general ledger;
• audited or draft financial statements;
• accounting policies;
• journal-entry listing;
• bank book and cash book;
• receivable and payable ageing;
• inventory records;
• fixed-asset register;
• loan schedules;
• investment schedules; and
• provisions and accrual workings.

Banking and Financial Documents

• bank statements;
• bank reconciliations;
• balance confirmations;
• loan agreements;
• sanction letters;
• repayment schedules;
• security documents; and
• fixed-deposit certificates.

Statutory and Tax Records

• GST returns and reconciliations;
• TDS returns and challans;
• income-tax records;
• PF and ESI returns;
• professional-tax records;
• customs documents, where applicable; and
• notices or pending statutory proceedings.

Corporate and Legal Documents

• memorandum and articles of association;
• board and shareholder resolutions;
• statutory registers;
• share-allotment records;
• agreements with customers and vendors;
• related-party agreements;
• lease agreements;
• legal-case details; and
• ROC forms filed during the year.

Management Information

• budgets and forecasts;
• management accounts;
• internal-audit reports;
• list of related parties;
• subsequent-event details;
• contingent-liability details;
• going-concern assessment; and
• management representations.

The audit team may request additional documents depending on the nature of transactions and findings during the audit. Management teams preparing for the audit can also refer to our detailed Statutory Audit Checklist for Companies in India.