Statutory audits are mandatory measures to check the nerves of a company’s finances. By road-mapping each function, each department and each transaction, the company is able to get a better picture of its finances.
Furthermore, a statutory audit allows the government to check if a company is presenting the financial facts in an accurate manner. For so long, companies have committed fraudulent activities, but with such an auditing system, the company is now held more accountable than ever.
What is Statutory Audit?
Statutory audit is a mandatory auditing of the financing of a business entity (in this blog’s case, a company). Here, the company’s financial structure and transactions are assessed to see whether the company is providing right information of its finances to its shareholders and the government. It consists of thorough examination of all the statements, financial statements, bank balance and books of accounts. The statutory audit of companies is not optional. Think of it as an inspection to check whether you are delivering true financial information to the customers.
How can you conduct a Statutory Audit?
As a company director, you can’t audit yourself. You have to appoint an auditor within 30 days of the registration of your company. The method of statutory audit in India is similar to way it’s conducted in western civilization. Except here, as per the Companies (Amendment) Act, 2017, an Annual General Meeting is held to appoint an auditor for 5 financial years. That’s right. You can’t use the same auditor every year. He has to be unbiased and has to be independent.
Who don’t have the power to conduct your company’s audit?
The Companies Act 2013 has placed some very specific criteria that decide the eligibility of who can and who cannot be the auditor. Following are the corporate bodies/individual professionals who are not eligible to be the auditor as per the statutory audit section under companies act:
- Any corporate body that’s not a Limited Liability partnership.
- An officer and employee of the company.
- An individual who is either the partner with an employee of the company or the employee of the company’s employee
- The person who owes the company a sum of money larger than 1000 rupees or a person who has guaranteed the debt of that person.
- A person who has held any securities in the company within 1 year since the commencement of business in that company.
- Any individual who has been convicted by the court for offence and there has been less than 10 years since that conviction.
The above bodies/professionals aren’t allowed to audit your company. Their financial and ethical status shows that they can be compromised and in the pursuit of correct assessment, compromising is intolerable.
Who has to go through Statutory Audit?
Within the Statutory Audit Applicability Section, it’s mentioned that any company whose annual turnover is more than 40 Lakh rupees or the capital contribution is more than 25 Lakh rupees has to undergo statutory audit.
Details of the Audit report
An audit report is a robust document detailing all the financial nuances of a company. They should all be correct and accountable and verifiable by the auditors. Such a report is generated in the Company’s Auditor’s Report Order (CARO), and it contains the following information:
- Inventories: What items are being accounted for.?
- Fixed Assets: What are the fixed assets of the company?
- Internal audit Standards: What are the standards under which the audit is undertaken?
- Statutory dues: The compliances that the company is yet to file.
Once created, the audit report is forwarded to the Ministry of Corporate Affairs for verification, along with the directors and shareholders of the company.
What if you don’t file the statutory audit?
A statutory audit is the legal benchmark that measures the ethical value of the company. Not complying with it is an easy way for you flag your company – putting it on the police’s radar. That being said, if you don’t file the statutory audit as per the due date, you’ll be hit with a fine of 20,000 rupees. Furthermore, all the officers who are responsible for such deference will be sent to prison for one year.
Statutory Audit is an important facet of business. It keeps you accountable, truthful and when all is said and done, it’s better for the future of your company. If you’re looking for statutory auditors who can adhere to the government standards while delivering you timely service, you can contact our business registration experts. We are an army of CAs, CSs and other financial professionals, always ready to notice your requirements and always ready to deliver on time.