Statutory audit is one of the main types of audits. It is a legal requirement as per the national laws prevalent in the region. The laws of a statutory audit are in the companies act, 2013. Statutory audit is essentially an audit of financial statements of an organization i.e. profit and loss and the balance sheet. The main purpose behind statutory audit is the same as the purpose of any other type of audit that is to determine whether an organization is providing an accurate and fair picture of the company’s current financial position on the date of the balance sheet.
It is important for us to understand the need for statutory audit, In the case of a company where owners of the company are the stakeholders. They do not run or manage the affairs of the company so this is done by the board of directors and management of the company. In order to give assurance to the stakeholder that the accounts maintained and published by the management are authentic and genuine, the law requires an independent auditor to conduct a statutory audit.
The auditor has full authority to check the financial records of the company and publish his funding through a report. The shareholders and the owner will then be assured of the authenticity of the financial statements.
Section 139 to 147 of the new Companies Act 2013 consists of the provisions relating to statutory audit and the auditor. Let us look at the responsibilities and rights of the auditor.
A statutory auditor has a right to access all the financial statements of a company, books of records and information. He has a right to seek any further information that he thinks is necessary for an audit.
The auditor must write an auditor's report in which he must state if the financial statement of a company holds a fair and true representation of their financial position and affairs.
If during the auditing process auditor finds any fraud then he must report it to the central government authorities.
During the audit and when providing the audit report the auditor must follow the Auditing standards as per the ICAI guidelines.
It strengthens the trustworthiness of published financial statements.
Assures the stakeholders regarding the authenticity of the financial statement
It ensures the management that their statutory duties appropriately as per the rules.
The auditor will provide recommendations for the improvement which helps the management to improve the performance of their company.
High cost: It is not cost-effective. A very detailed and thorough audit will be costly so the auditor has to limit the scope of his audit and use tactics like sampling and test checking.
Time-consuming: Auditing is a time-consuming process sometimes it takes months to do auditing of a single firm and if in case there are errors found in the financial statement of a company then it can even take longer time then that.
Misleading clarification: Sometimes management may not provide correct clarification so the auditor is bound to prepare the report even if the clarification is not true Therefore, Auditing fails to disclose correct information.
1. What is the statutory audit?
Statutory audit is a type of audit that is mandated by a statue of Law to make sure that a true and fair view of the business's book of accounts is presented to the public.
2. What are the four phases of an Audit?
Audit follow-up and closure
3. Is it mandatory to appoint an auditor?
If you have a private limited company, it is mandatory to appoint an auditor unless it's a startup. The first auditor should be appointed within 30 days of incorporating a company.
4. Why is statutory compliance important?
One of the most important advantages of statutory compliance to an employee is that it ensures the fair treatment of labour. It also prevents the employees from being exploited and made to work in inhuman conditions or for unmanly hours.
5. For how many years an auditor can audit a company?
The company will have to appoint an auditor mandatorily for 5 years.
6. Is statutory audit compulsory?
As the name suggests statutory audit is a compulsory audit for all companies. In fact, every entity which is registered under the companies act, as a public limited company and a private limited company has to get its books of account audited every year.
7. What is the difference between a tax audit and statutory audit?
A statutory audit is a compulsory audit for all companies. Every entity which is registered under companies act as a public limited company or a private limited company has to get its books of account audited every year. The statutory audit is not conditional. On the other hand, a Tax audit is a conditional audit conducted under the regulations of the Income-tax act. This act states that if the turnover of any enterprise is more than 1 crore and in case of professionals, the value of services is more than Rs.50 laces then, in that case, they have to get their books of accounts audited by a chartered accountant.
8. What is the statutory report?
This reporting is the mandatory submission of financial and Non-financial information of a government agency. IFRS (International Financial Reporting Standards) has replaced generally accepted accounting principles with statutory reporting in many countries.
9. What is the difference between the statutory audit and internal audit?
In an internal audit, auditors are appointed by the management of a company whereas, in statutory audit, Auditors are appointed by the shareholders of the company.
10. Can a cost accountant do a statutory audit?
As per section 141 (1) of Companies Act, 2013 a person should be eligible to be appointed as an auditor of a company only if he is a chartered accountant. Therefore, a cost accountant cannot conduct a statutory audit and Tax audit