Statutory Audit

A statutory audit is a mandatory examination of a company’s or government’s financial statements and records to ensure their accuracy. Its purpose is to verify whether the organization provides a truthful and precise representation of its financial position by assessing key information, including bank balances, financial transactions, and accounting records.

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OVERVIEW - Statutory Audit

A statutory audit is an audit required by law or statute to verify that a company’s financial records are accurate and fairly presented to regulators and the public. It becomes mandatory when a business meets specific criteria. This audit is conducted by a qualified Chartered Accountant who operates independently from the business.

A statutory audit is an audit mandated by various statutes, such as the Reserve Bank of India (RBI), the Income Tax Act, and the Companies Act. Chartered Accountants are required to perform multiple audits in compliance with these statutory regulations. The statutory audit of banks is compulsory, with auditors appointed by the RBI in collaboration with the ICAI. Each year, after the close of the financial year, a thorough audit is conducted in every bank branch to ensure compliance and accuracy.

What is Annual Compliance For a One person Company?

Disqualification for Appointment as Auditor

The following individuals and entities are disqualified from being appointed as the auditor of a company:

Corporate Entities – Any body corporate, even if all directors or members are Chartered Accountants, whether in business or practice.
Company Officers & Employees – Any officer or employee of the company.
Partners & Employees of Company Officers – Any person who is a partner or employee of an officer or employee of the company.
Individuals with Financial Interests – A person, or their relative or partner, who:
- Holds any security or interest in the company, its subsidiary, holding, or associate company. However, a relative may hold securities up to a face value of ₹1,000.
- Owes more than ₹1,00,000 to the company, its subsidiary, holding, or associate company.
- Has provided a guarantee or security exceeding ₹1,00,000 for any third-party debt related to the company, its subsidiary, holding, or associate company.
Business Relationships – Any person or firm having a direct or indirect business relationship with the company, its subsidiary, holding, or associate company.
Relatives of Key Personnel – A person whose relative is a director or holds a key managerial position in the company.
Employment & Multiple Appointments – A person who:
- Is in full-time employment elsewhere.
- Is a partner in a firm already appointed as an auditor of more than 20 companies at the time of appointment or reappointment.
Fraud Convictions – A person convicted of an offense involving fraud, where less than ten years have passed since the conviction.
Providers of Consulting Services – A person whose subsidiary, associate company, or any affiliated entity is engaged in offering consulting or specialized services to the public as of the date of appointment.

Who Can Be Appointed as a Statutory Auditor?

A statutory auditor is responsible for verifying the accuracy of a company’s financial records. As per the Companies Act, 2013, only a practicing Chartered Accountant (CA) is eligible for appointment as a statutory auditor. To qualify for appointment, an individual must meet the necessary eligibility criteria to act as an auditor. Additionally, a Chartered Accountant firm can be appointed as a statutory auditor, provided that the majority of its partners are practicing CAs in India and are individually qualified for appointment. A Limited Liability Partnership (LLP) can also be appointed as an auditor in its own name. However, all partners in the LLP must be engaged in full-time practice as Chartered Accountants to qualify for the role.

Appointment of an Auditor

Statutory Auditor

A private limited company must appoint its first auditor within 30 days of registration.
The first auditor’s appointment is confirmed at the first AGM and lasts for five years.
Only an independent practising CA, CA firm, or LLP (with a majority of partners practising in India) can be appointed.

Internal Auditor

Can be conducted by internal staff or an independent party.
The internal auditor must be a CA, cost accountant, or other professional as decided by the board.
The auditor can also be a company employee.

Cost Auditor

Companies requiring a cost audit under the Companies (Cost Records and Audit) Rules, 2014 must appoint a cost auditor within 180 days of the financial year’s start.
Only a cost accountant in practice can be appointed.
This includes individuals or firms/LLPs of cost accountants, as per the Cost and Works Accountants Act, 1959.

ROC Forms for Audit Requirements

The ROC forms that a private limited company must file in relation to the audit requirements are as follows:

Forms	Purpose of the Form
Form ADT-1	Appointment of company auditor
Form AOC-4	Annual filing of company financial statements
Form MGT-7	Filing of company annual return
Form CRA-2	Appointment of cost auditor
Form CRA-3	Submission of cost audit records to the board
Form CRA-4	Filing of cost audit report

Types of Audits for a Private Limited Company

Private limited companies undergo different types of audits for various purposes. The key types include:

Statutory Audit

Mandatory for all private limited companies, regardless of profit or turnover.
Required under the Companies Act and Companies (Accounts) Rules, 2014.
Ensures the company’s financial statements, bank balances, and books of accounts accurately reflect its financial position.

Internal Audit

Conducted based on internal management’s recommendation.
Mandatory for private companies that meet any of the following criteria:
- Turnover of ₹200 crore or more in the previous financial year.
- Outstanding loans or borrowings exceeding ₹100 crore from Public Financial Institutions or banks.
Helps assess financial status and operational efficiency for better decision-making.

Cost Audit

Required under the Companies (Cost Records and Audit) Rules, 2014 for companies involved in specific goods/services.
Applicable if:
- Engaged in products/services listed in Table 3(A) with:
  - Annual turnover of ₹50 crore or more.
  - Turnover of ₹25 crore or more for a specific product/service.
- Engaged in products/services listed in Table 3(B) with:
  - Annual turnover of ₹100 crore or more.
  - Turnover of ₹35 crore or more for a specific product/service.

Importance of Statutory Audits

As per the Companies Act, 2013 and the Companies (Audit and Auditors) Rules, 2014, all private and public limited companies are legally required to conduct a statutory audit of their financial records.

Key Points:

Statutory audits are mandatory, regardless of a company’s nature or turnover.
Limited Liability Partnerships (LLPs) must conduct a statutory audit if:
- Their capital contribution exceeds ₹25 lakhs.
- Their annual turnover exceeds ₹40 lakhs.
Non-compliance penalties:
- Companies may face fines ranging from ₹25,000 to ₹5,00,000.
- Responsible officers can be penalized between ₹10,000 to ₹1,00,000 and may face imprisonment of up to one year.

GST Audit Checklist

Input Tax Credit (ITC) Verification
Output Tax Liability Assessment
Tax Liability Reconciliation (with GSTR-1 and GSTR-3B)
Reconciliation of Taxable Outward Supplies (with GSTR-1 and GSTR-3B)
Reconciliation of Availed Input Tax Credit

The Content of Audit Report

Heading	Brief of contents
The title	should mention that it is an ‘Independent Auditor’s Report’.
Addressee	Should mention clearly as to whom the report is being given to. For example Members of the company, Board of Directors
Management’s Responsibility for Financial Statements	Mentions that it is the Management’s responsibility to Prepare the Financial Statements.
Auditor’s Responsibility	Mention that responsibility of the Auditor is to express an unbiased opinion on the financial statements and issue an audit report.
Opinion	Should mention the overall impression obtained from the audit of financial statements. For example Modified Opinion, Unmodified Opinion
The basis of the Opinion	States the basis on which the opinion as reported has been achieved. Facts of the basis should be mentioned.
Other Reporting Responsibility	If any other reporting responsibility exists, the same should be mentioned. For example Report on Legal or Regulatory requirements
Signature of the Auditor	The engagement partner (auditor) shall sign the audit report.
Place of Signature	The city in which audit report is signed.
Date of Audit Report	Date on which the audit report is signed.

Important Updates on GSTR-9C

For businesses with an annual turnover below ₹5 crore, GSTR-9C filing was waived off up to FY 2019-20 through various CBIC notifications.
As per the Finance Act, 2021, the requirement of GST audits by CA/CMA was removed from FY 2021-22 onwards.
This change was officially notified in CBIC Notification No. 29/2021 – Central Tax, dated 30th July 2021.

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Statutory Audit

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Why Should I Use Auriga Accounting of Statutory Audit ?

book appointment

Resolve all your queries

Complete your Aduit Report

Why Should I Use Auriga Accounting of statutory audit ?

book appointment

Resolve all your queries

Complete your Audit Report

OVERVIEW - Statutory Audit

Disqualification for Appointment as Auditor

Who Can Be Appointed as a Statutory Auditor?

Appointment of an Auditor

ROC Forms for Audit Requirements

Types of Audits for a Private Limited Company

Importance of Statutory Audits

The Content of Audit Report

Important Updates on GSTR-9C

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