One of the main types of audits is a statutory audit. It is a legal requirement as per the state or national laws prevalent in the region. In India, the laws regarding a statutory audit are in the Companies Act, 2013. Let us explore the scope and advantages of a statutory audit.
Statutory Audit
A statutory is another name of a financial audit. It is essentially an audit of the final statements of a company, i.e. the profit and loss and the balance sheet. The purpose of a statutory audit is to ensure that these accounts of the company represent a fair and accurate picture of the company’s current financial position on the date of the balance sheet.
It is important that we understand the need for a statutory audit to be carried out. In case of a company, the owners of the company are the shareholders. However, they do not run or manage the day to day affairs of the company. This is done by the board of directors and the management of the company.
So the shareholders need assurance that the accounts maintained and published by the company are authentic and genuine. This is why the law requires that an independent auditor to conduct a statutory audit.
The independent auditor has full authority to check the financial records of the company and publish his findings via an auditor’s report. The shareholders and owners of the enterprise can then be assured of the authenticity and reliability of the financial statements.
Other stakeholders like creditors, employees, potential investors etc also benefit from the statutory audit. They too can base their decisions on these accounts, since they are authentic.
Statutory Auditor
The provisions relating to statutory audit and auditors is the sections 139 to 147 of the new Companies Act 2013. It states the method of appointing an auditor, the eligibility of a statutory auditor and the duties and responsibilities of such an auditor. Some important points with respect to the auditor are,
- A statutory auditor has the right to access all of the company’s financial books, records, and information. These should be made available to him at all times. He also has the right to seek any further information he thinks is necessary for his audit
- He has the duty to write an auditor’s report. In this, he must state if the financial statements of the company give a true and fair representation of their financial position and affairs.
- If he is writing a qualified report, i.e. the statements are not true and fair, he must clearly state his reasons for the same.
- In case the auditor uncovers any fraud during his audit he must report it to the Central Government authorities.
- While auditing and providing the Audit Report he must follow the Auditing Standards as per the ICAI guidelines.
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Q: What are the qualifications of a statutory auditor?
Ans: To be eligible as a statutory auditor, the person must be a Chartered Accountant, i.e. a member of the ICAI. In case of a firm, the majority of its members must be chartered accountants in their own right. Then the firm can be eligible to be in charge of a statutory audit of a company.
FAQs
A statutory audit is an official inspection of an organization's financial records by an external entity. It is designed to determine if the subject's financial statements and records are accurate, and it is not voluntary.
What are good questions for auditors to ask? ›
In-depth audit interview questions
- What helps reduce the number of errors in your audits?
- What steps do you take to fix an auditing mistake?
- Can you explain how you assess a company's risk?
- How might you persuade someone to implement your recommendations?
- What steps do you take to gather data?
The statutory auditor, as part of his responsibility to express an opinion on whether the financial statements give a true and fair view, must confirm that the statements reflect the financial implications of any such illegal acts.
What is the difference between auditor and statutory audit? ›
While internal audit helps the management in ensuring operational efficiency, controls, corporate governance etc. are working effectively in their organization , statutory audit ensures that their financial statements give a true and fair view and are compliant with all applicable laws and regulations.
What is statutory audit checklist? ›
A statutory audit checklist is a compulsory requirement of law for the review of a company's financial statements. It records to determine whether financial statements provide an accurate and fair view of its state of affairs.
What is the primary objective of statutory auditor? ›
Statutory audit verifies financial statements for accuracy, ensuring a true and fair representation, detects fraud, and assesses internal controls. Who needs statutory audit? Entities like companies, as mandated by regulatory authorities, often with certain turnover or capital thresholds, require statutory audits.
What are the three types of audit questions? ›
Types of questions to ask in internal audits
- Open Questions: This is going to be a commonly used question style when starting a new audit with a new auditee. ...
- Closed Questions: ...
- Challenging Questions: ...
- Summarising Questions: ...
- Simple Questions: ...
- 'Show Me' Questions: ...
- Leading Questions:
Leading question is a type of question that pushes respondents to answer in a specific manner, based on the way they are framed. More than often, these questions already contain information that survey creator wants to confirm rather than try to get a true and an unbiased answer to that question.
What are 3 things auditors do when they audit a company? ›
What Are the Main Functions of An Auditor?
- Provide recommendations to improve weak internal controls.
- Investigate instances of possible fraud (even those considered immaterial).
- Perform reconciliations of financial and operating information.
- Monitor compliance with industry standards, laws, and guidelines.
A statutory audit is intended to determine if an organisation delivers an honest and accurate representation of its financial position by evaluating information, such as bank balances, financial transactions, and accounting records.
In India, the term "statutory auditor" refers to an external auditor whose appointment is mandated by law.
Why did you choose statutory audit? ›
Statutory audit provides an objective and independent review of the organisation's financial statements and processes to ensure accuracy and compliance with legal and regulatory obligations.
What is statutory audit limit? ›
Proprietorship firm must complete a tax audit by a Chartered Accountant if the annual sales turnover exceeds Rs. 1 crore in terms of business or if annual gross receipts exceed Rs. 25 lakhs in terms of a Profession.
Who appoints the statutory auditor? ›
Statutory Auditor: Appointment
A future auditor will be selected by the shareholders at the first annual general meeting and will serve for a period of five years. Within 15 days following the appointment, the firm must additionally file a notice of such appointment in Application Form ADT-1 with the Registrar.
What is statutory accounting principles mean? ›
Key Takeaways. The Statutory Accounting Principles (SAP) are accounting regulations for the preparation of an insurance firm's financial statements. The focus of SAP is to ensure the solvency of insurance firms so that they are able to meet the obligations to their policyholders.
What is statutory audit also known as? ›
Statutory audits typically refer to financial audits.
What are the basic concepts of internal auditor? ›
An internal auditor's role usually includes reviewing processes and procedures, examining financial records, assessing compliance with applicable laws and regulations, evaluating risks and developing recommendations to improve risk management, and investigating fraud.
