Statutory Audit: What is It, and Who Requires it?
With the current regulatory climate compliance is not just a letter of the law, but a basis for trust and transparency. Statutory Audit: One of the primary compliance needs for businesses in India is statutory audit. A statutory audit is an audit which is required by law; it is conducted to ensure that the financial statements of a company are presented fairly and in accordance with local laws. At GSCCA, we support businesses interpret, organise and fulfil their financial audit responsibilities with confidence.
Understanding Statutory Audit
What is Statutory Audit A statutory audit is a requirement by law with the purpose of regulating financial information through an independent Chartered Accountant. The audit is an examination to prove the correctness or truth of financial statements and to determine if they have been made in compliance with applicable statutes such as Companies Act, Income Tax Act etc.
Statutory Audit: Unlike internal audits, which check the company’s management and are voluntary, statutory audit is required for certain institutions or companies, and an external auditor must conduct this. An independent opinion is given by the auditor as to whether the financial statements show a true picture of the company’s financial position.
Object and Importance of Statutory Audit
The main goal of a statutory audit is to promote transparency and accountability in the financial reporting process. It looks at the long-term interest of all those who have a stake in the company including shareholders, investors and lenders, government, employees etc. A statutory audit also helps detecting errors, misstatements or fraud at a early stage which cut down financial and legal risks.
In the case of organizations, doing an audit well will boost faith in business and regulators. It’s also necessary to (though) so the company abides by accounting standards and laws, to avoid fines and legal headaches.
Legal Framework Governing Statutory Audit
Statutory audits in India are primarily regulated by the Companies Act, 2013 and rules framed there-under, as well as those prescribed by the regulatory body “Institute of Chartered Accountants of India”. A few other relevant laws also apply depending on the nature of the entity, such as the Income Tax Act, LLP Act and the Banking Regulation Act or sector-specific regulations.
Who conducts the audit and how are auditors appointed; what are their powers, duties? What does the audit report specify? Failing to adhere statutory audit requirements can lead to fines, penalties and also criminal charges in the worst cases.
Who Needs a Statutory Audit?
The audit according to the Statute is dependent on the form and size of the enterprise. All companies formed under the Companies Act i.e. private limited and public limited companies have to go through a statutory audit regardless of their turnover or profit. This means statutory audit is compulsory for all companies with no exemption.
LLPs need to be audited by an statutory auditor if their turnover is more than limit prescribed or contribution capital exceeds the newly fixed threshold. Partnerships and proprietors may also have to submit their books of account for an audit under the Income Tax Act if their turnover crosses the mandatory tax audit limit specified under tax laws.
There are further specific entities like banks, insurance companies, societies and trusts or non-profit organizations which are required to undergo statutory audit as per the respective relevant laws. Sometimes government or funding authorities require a statutory audit as a condition for receiving grants or providing approval for some activity.
Process of a Statutory Audit
The statutory audit process commences with planning and understanding of the business and internal controls. The auditor next verifies accounting records, vouchers, invoices, bank statements and such other supporting documents. Verification is performed to ascertain the arithmetical accuracy, proper recording and lawfulness of transactions.
The auditor does also examine internal controls and considers financial risk zones. The auditor then issues a report on his examination in which he gives an opinion on the fairness of the financial statement. This report is provided to appropriate agencies and represents an essential component of the company’s annual compliancy filings.
What Happens if Auditing is not Done According to Statute?
If you fail to have a statutory audit when you are required, there can be significant implications. Businesses can end up paying heavy fines, directors disqualified, reputation tarnished and more interest from tax and regulatory agencies. In certain situation, failing to comply also has an impact on funding and relationships with banks or investors.
Routinely scheduled statutory audits can keep businesses in line, organized and ready for regulatory oven inspection or assessment.
How GSCCA Can Help
At GSCCA we offer comprehensive statutory audit services that are personalised to your type of business and industry needs. The well-experienced Chartered Accountants in our firm carry out the comprehensive audit planning with authentic verification and submission of timely audited reports as desired. Our attention goes past just compliance, as we aim to highlight potential areas of financial improvement and risk that can support your business for years to come.
Whether you are a new company, an existing business or a developing LLP (Limited Liability Partnership), GSCCA guarantees your statutory audit is managed professionally, effectively and adhering to the full letter of the law.
Conclusion
A statutory audit is not simply a regulatory requirement, it’s an important device to bring about financial openness and responsibility, and long-term business reputation. Knowing who requires a statutory audit and why it is important can enable businesses to keep up-to-date and reduce undue risk. With GSCCA as your audit expert, you can rest assured that all of your statutory audit needs will be handled with professionalism and experience.
