Stautory Audit

Introduction

In India, the laws pertaining to Statutory Audit are prescribed under Companies Act, 2013. In general terms it is an audit of the Financial Statements of the Company i.e. of the Balance Sheet and Profit & Loss Account of the company. It is mandatory to conduct statutory audit and it has to be performed by an Independent Chartered Accountant if a business meets certain criteria and thereafter a report is to be prepared by the Auditor stating the facts, opinion, adverse remark and disclaimer of information (if any) observed by the Auditor in the format as prescribed by the regulator. Independent auditor means the auditor should not have any relation with the auditee (The company in which the audit is required to perform).

Statutory Audit is of two types

  • Tax Audit
    Tax Audit is an Examination of Tax records under Income Tax Act 1961. Income tax audit is an examination of the business or tax returns of the individuals by the state tax authority
  • Company Audit
    Company audit means verification of Financial statements i.e. Balance Sheet, Profit or Loss Account or Income and Expenditure Statement and Cash Flow Statement of the auditee Company. It is required to be done at the end of every Financial year.

Who Requires to Get its books of Account Audited?

Process of Statutory Audit

The whole process of design registration can be divided into the steps mentioned below:

  • 1

    Review:

    Statutory Audit should take the basic understanding of internal and external environment of the company auditor should obtains a deep understanding of the business, Financial Statements and books of accounts prepared by the Business and internal control.

  • 2

    Statutory Audit

    In the next step, the auditor will verify the Financial Statements of auditee and verify it on sample basis. The important thing under any audit is to make sample, it is called sample audit.

  • 3

    Reporting

    Based on the data and information collected by the auditor from the various procedure performed procured now auditor will prepare a report thereby expressing the opinion on the Financial Statements based on the audit evidence collected portraying a true and fair view on the financial statements i.e. whether the financial statement prepared by the management are free from all material misstatement.

Types of Audit Opinion

  • Modified
    Modified Report means that financial statement prepared are materially misstated. Modified report can be of three type:
    • Qualified
      An audit report becomes qualified when auditor finds that financial statements are not prepared according to GAAP standards
    • Adverse
      This is the worst type of audit report. An adverse opinion states that the financial statement prepared are material misstated and does not give a true and fair view.
    • Disclaime
      This will happen when auditor is not able to give any opinion on the financial statement. This stating that an opinion upon the firm’s financial status of the company could not be determined.
  • Unmodified
    This is a clear audit opinion which states that Financial statement prepared are free from any material misstatement

Who Is Eligible to Appoint as a Statutory Auditor

As per the section 141 of companies Act 2013 statutory auditor of a company should be a Chartered Accountant practicing in India. In case auditee is a firm then maximum number of partner in such firm should be Chartered Accountant practicing in India.

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