Statutory Audit

 – Under the Companies Act, 2013

What is a Statutory Audit?

A Statutory Audit is a legally mandated audit of the financial statements of a company to ensure that they present a true and fair view of its financial position and performance.

It is governed by the Companies Act, 2013 and conducted by an independent Chartered Accountant (Statutory Auditor) who is appointed by the shareholders of the company.

This audit is mandatory for all companies registered in India, irrespective of size, turnover, or nature of business.

Objective of Statutory Audit

• To verify that financial statements (Balance Sheet, Profit & Loss Account, Cash Flow Statement, and Notes to Accounts) comply with the law.
• To ensure that financial reporting reflects the true and fair view of the company’s affairs.
• To safeguard the interests of shareholders, creditors, investors, and other stakeholders.
• To identify frauds, misstatements, or irregularities in the books of accounts.
• To ensure compliance with Companies Act, Accounting Standards (Ind AS), and other laws.

Applicability of Statutory Audit

• All Public and Private Limited Companies registered under the Companies Act, 2013 must undergo a statutory audit, regardless of turnover or profit/loss.
• One Person Companies (OPC) and Small Companies are also covered.

 This means every company registered with MCA (Ministry of Corporate Affairs) must have a Statutory Audit done annually.

Appointment of Statutory Auditor

• The first auditor of a company is appointed within 30 days of incorporation by the Board of Directors.
• Subsequent auditors are appointed in the Annual General Meeting (AGM) by shareholders for a term of 5 years.
• The auditor must be a Chartered Accountant in practice or a firm of Chartered Accountants.

Process of Statutory Audit

1. Planning & Risk Assessment – Auditor understands the company, business, and risks involved.
2. Verification of Books of Accounts – Checking vouchers, ledgers, trial balance, and accounting records.
3. Internal Control Testing – Evaluating whether proper systems are in place to prevent fraud/errors.
4. Analytical Procedures – Comparing financial ratios, trends, and unusual fluctuations.
5. Verification of Financial Statements – Ensuring compliance with Accounting Standards & disclosure norms.
6. Reporting – Auditor issues an Audit Report under Section 143 of the Companies Act.

Statutory Audit Report

• Prepared by the Statutory Auditor in accordance with Section 143 of the Companies Act, 2013.
• The report states whether:
  • The accounts give a true and fair view of the financial position.
  • The company has maintained proper books of accounts.
  • Statutory compliances (TDS, GST, PF, ESI, etc.) are followed.
  • Any fraud or irregularities have been noticed.

Penalty for Non-Compliance

If a company fails to conduct a statutory audit:

• The company can be fined from ₹25,000 to ₹5,00,000.
• Every officer in default can be imprisoned up to 1 year or fined between ₹10,000 to ₹1,00,000.
• Auditor giving false report may face fines, imprisonment, and removal.

Benefits of Statutory Audit

• Ensures transparency and reliability in financial reporting.
• Builds trust with investors, banks, and stakeholders.
• Helps detect fraud, mismanagement, and errors.
• Mandatory for raising loans, funding, and government tenders.
• Ensures compliance with corporate governance norms.

Key Responsibilities of a Statutory Auditor

• Examine accounting records and verify accuracy.
• Ensure compliance with Accounting Standards & Companies Act.
• Comment on adequacy of internal controls.
• Report any frauds or non-compliances to the Central Government (if above ₹1 crore).
• Certify the correctness of financial statements.

Statutory Audit vs. Tax Audit – Key Difference