Statutory Company Audit Under Companies Act 2013

Section 143 of the Companies Act,2013 entails provisions regarding powers and duties of auditors. The statutory auditor shall present a report to the company’s shareholders on the Books of accounts and financial documents examined by him.

A statutory audit is an audit mandated by a Statute that ensures that the accurate and fair view of the book of accounts is presented to the Regulators & the Public. Unlike internal Audits, Statutory Audits are not optional and must be performed if a company satisfies specific criteria.

The Statutory Auditor will have access to books of accounts and vouchers etc., constantly, and he has any authority to ask for further information from company officers, if necessary. The auditor in his report must clarify, besides other things, whether the financial statements represent an accurate and fair picture of the company’s affairs as at the end of the financial year.

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.

Statutory Company Audit Under Companies Act 2013

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 under Companies Act 2013

  • 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.
  • Private Company/ Public Company: Statutory audit is a mandatory choice regardless of profits, or losses incurred, and yearly turnover.

The expression financial statement includes the following items:

A balance sheet as at the end of the financial year

A profit and loss account and income & expenditure

Cash flow statement for the financial year

A statement for changes in equity, if applicable

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

  • 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.

The Statutory Company Audit Process

Appointment of Auditors

The first step in the audit process is appointing a qualified and independent auditor or audit firm.

Internal Control Assessment

Auditors assess the company's internal controls to determine their effectiveness in preventing and detecting fraud and errors.

Planning and Risk Assessment

Auditors begin by planning the audit. They identify areas of risk and potential problems

Report Preparation

After thorough examination, auditors prepare an audit report. This report includes their findings, any identified weaknesses , and their opinion on the company's financial statements

Data Collection and Examination

This is where the audit gets hands-on. Auditors collect and analyze financial data and supporting documents.

Communication

Auditors communicate their findings with the company's management and board of directors. They may also provide recommendations for improvements in the company 

Testing Transactions

o ensure the accuracy of financial records, auditors test a sample of transactions. This involves tracing transactions.

Audit Opinion

The final audit opinion is included in the audit report. This opinion can be unqualified (clean),  or a disclaimer (insufficient information to form an opinion).

Why Does Statutory Company Audit Matter?

  • Financial Transparency: Audited financial statements provide transparency, giving stakeholders a clear view of the company’s financial health.

  • Legal Compliance: For many businesses, audits are a legal requirement to ensure compliance with financial regulations.

  • Investor Confidence: Audited financials instill confidence in investors, lenders, and shareholders, making it easier to attract capital.

  • Fraud Prevention: Auditors help detect and prevent financial fraud, safeguarding the company’s assets.

  • Operational Improvements: Audit findings often include recommendations for improving internal controls and operational efficiency.

FAQs (Frequently Asked Questions)

Q1: Does every company need to undergo a statutory company audit?

A1: Not necessarily. The need for an audit depends on factors like company size, industry, and local regulations. Smaller businesses may be exempt.

Q2: How often is a statutory company audit required?

A2: In most cases, companies undergo annual audits. However, the frequency can vary based on jurisdiction and company type.

Q3: What if the auditor identifies issues during the audit?

A3: If auditors uncover problems or irregularities, they report them in the audit findings. The company is then expected to address these issues.

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