The word Statutory means something prescribed by the Law of the Country or regulated by the statute. Whereas, the word, Audit refers to the Independent Examination of financial information of an entity, to express an opinion thereon. Statutory Audit in India, therefore, refers to Independent examination and audit of the books of accounts of an entity. An audit is based on the laws applicable and the requirements of the statute.
In India, Statutory Audit is conducted according to the provisions of the Companies Act, 2013. It is mandatory for all the companies who are registered in India(whether a domestic company or foreign company). They have to get their books of accounts audited by a practicing Chartered Accountant holding a certificate of practice.
The principal objective of the Statutory Audit is to provide a reasonable assurance that the accounts are prepared in line with the generally accepted accounting policies and principles i.e. it ensures that the financial statements of an enterprise present a true and fair view of the financial position of the company. It also includes evaluation of Internal control of the company, conformity with IFRS, compliance with IGAAP and other Statutory Compliances like collection and remittance of Service Tax, CST and VAT, deduction and remittance of TDS, Provident Fund, Professional Tax, etc.
As the primary aim of conducting an audit is to safeguard the interest of the shareholders. It is very imperative to conduct such an audit competently as this would fetch investor’s trust. It also gives confidence to the company which would ultimately contribute towards the vigorous growth of the company.
The time duration for completing the statutory audit of an entity solely depends upon the objectives and scope of the audit. In order to start a statutory audit, an auditor is required to first visit, understand and evaluate the entity to be audited and then plan his procedures accordingly.
A statutory auditor has to closely monitor the nature, accounting system and environment of the entity, therefore, he works closely with the management. After understanding and gathering the data required to conduct such an audit the auditor shall prepare an Audit Report to express his opinion on the true and fair view of the financial statements. Based on his conclusion his opinion may be qualified, unqualified, disclaimer or adverse.
The auditor so appointed is required to prepare the Audit Report in accordance with the Companies Auditor’s Report Order, 2016 (CARO, 2016). As per CARO, an auditor should report on aspects like inventories, fixed assets, statutory dues, etc.
As far as the requirement of a statutory audit is concerned. All companies, be it Private Limited Company, One Person Company, Section 8 Company, Limited Company, Producer Company, Nidhi Company must get their accounts audited by a Statutory Auditor irrespective of size, nature of business and turnover.
If a company also has a branch office, then accounts of such a branch office shall also be audited. Such accounts can either be audited by the Companies Auditor or any other person who is qualified to act as the CA. However, dormant Companies and small exempt private companies (“EPC’s) are exempt from getting a statutory audit conducted.
A Limited Liability Partnership firm shall appoint a Statutory Auditor if the turnover exceeds Rs. 40 Lakhs, or if the capital contribution exceeds Rs. 25 Lakhs, irrespective of the nature of business.
Over the years, the scope of statutory audit in India has widened in terms of complexity. It does not matter what kind of business an entity is into, the process of audit remains the same and is essential for every company registered in India. Therefore, such an audit should be planned well and thus executed efficiently.