Roles and Responsibilities of Statutory Audit

Statutory Audit is an audit made compulsory by the Companies Act 2013 to analyze and brief into a report published to give an overview of the operational outcome of the company. The primary motive of Statutory Audit is an honest and fair view of the book of records of a business that is presented to the Regulators and the Public.

Definition

A statutory audit is a process of checking the precision of the financial statements and records of the company or the government. The statutory audit aims to determine the delivery of the organisation's accurate representation of its financial situation by analyzing accounting records, financial transactions, and bank balance.

What is the purpose of a statutory audit?

Statutory means mandatory; therefore, statutory audit signifies a necessary formality of the Companies Act 2013. The statutory audit is considered the final statement of the company analyzing the profit and loss and the balance sheet. 

The purpose of the statutory audit is to ensure that the company's present financial condition is shown honestly and accurately on the balance sheet. 

The need for statutory action can be realized by shareholders, who do not play any role in the day-to-day operations in an organisation but require assurance that the organization's accounts are maintained fairly, and the publications made by the organization are genuinely authentic. Based on that, the stakeholders make their future financial decisions regarding the company.

Who performs the statutory audit?

An independent auditor possesses the absolute authority to go through the company's financial records and make a publication as an auditor’s report based on his findings from the records.

What are the laws regulating statutory audits in India?

The provisions under Sec. 139 - Sec. 149 of the Companies Act 2013 regulate the procedure of the statutory audit and the conduct of the auditors, states that:

• A statutory auditor has the power to go through and analyse all of the sensitive data of the company, such as financial books, records, and information. The auditor also has the right to seek any further information that he thinks is necessary for the purpose
• It is his responsibility to write an auditor’s report. In this, he should state if the financial statements of the company give a true and fair description of their financial status and affairs.
• If he raises a quality issue, such as the statements are not true and fair, he must clearly state his reasons for the same.
• If the auditor reveals any fraud during his audit, he must communicate it to the Central Government authorities.
• While auditing and presenting the Audit Report, he must comprehend the auditing standards as per the ICAI guidelines.

Who can be a statutory auditor?

To be a statutory auditor, the person needs to be a Chartered Accountant, a member of the ICAI. In the case of a firm, most of its members should be chartered accountants in their power. Then the firm can be eligible to be in charge of a statutory audit of a company.

Not all businesses are required to undergo statutory audits. Government corporations, banks, brokerages, investment houses, and insurance companies are subject to audits. Those funds may also conduct statutory audits. Mainly, small companies are eliminated. To be excused from an audit, businesses must reach a minimum size, and the employee base is usually under 50 employees.