Expert verified Preparing a clear and comprehensive statutory audit checklist for companies can help them stay audit-ready, improve financial accuracy, and demonstrate transparency to stakeholders.
In this post, we’ll walk through a practical checklist and discuss all the areas covered by it.
What are Statutory Audits and Who Needs Them?
A statutory audit is a legally required review of the financial statements of a company or organization.
It is carried out to ensure that the financial records are accurate, complete, and prepared according to the relevant laws and accounting standards.
This audit is mainly mandated under the Companies Act, 2013, if it meets certain conditions and is to be conducted by an independent CA.
Statutory Audit in Mandated For:
A statutory audit is mandatory based on the type and size of the entity:
- Companies (under Companies Act, 2013): Private Ltd, Public Ltd, OPCs, and Section 8 Companies: Audit is mandatory for all, regardless of turnover or profits.
- LLPs: Audit is mandatory if turnover > ₹40 lakhs or capital > ₹25 lakhs (as per LLP Rules, 2009).
- Other Entities:
- Banks & Insurance Companies: Required by respective laws.
- Public Charitable Trusts & Societies: Often required by state laws or for tax exemption.
- Entities under FCRA: Mandatory for compliance.
- Partnerships: Not mandatory by law, but may be required by tax rules, lenders, or partnership agreements.
Learn more about Statutory Audit For Companies here
Areas Covered by a Statutory Audit Checklist
A statutory audit checklist ensures a systematic review of an entity’s financial health, compliance, and internal controls.
Although specifics can vary by entity size, industry, and risk profile, here are the core areas examined:
1. Financial Statements & Records
- Accuracy & Completeness: Verification of Trial Balance, General Ledger, Subsidiary Ledgers (Debtors, Creditors, Inventory).
- Supporting Evidence: Scrutiny of invoices, receipts, contracts, bank statements, delivery challans.
- Cut-off Procedures: Ensuring transactions are recorded in the correct accounting period (year-end).
- Mathematical Accuracy: Checking calculations and postings.
2. Assets
- Existence & Ownership: Physical verification (where applicable, e.g., Inventory, Fixed Assets); examination of title deeds and registration documents.
- Valuation (in line with AS/Ind AS):
- Fixed Assets: Cost, depreciation, impairment
- Inventory: Lower of cost or net realizable value
- Investments: Classification (Current/Long-term), valuation method (cost/fair value)
- Receivables (Debtors): Realisability, adequacy of provision for doubtful/bad debts
- Condition: Assessment for impairment or obsolescence
3. Liabilities
- Completeness: Identification of all outstanding obligations (Secured/Unsecured Loans, Creditors, Accrued Expenses, Provisions).
- Accuracy: Confirmation of balances (e.g., direct confirmations from lenders, major suppliers).
- Classification: Proper distinction between current and non-current liabilities.
- Compliance: Adherence to loan covenants and terms.
4. Equity
- Share Capital: Verification of issued, subscribed, and paid-up capital; share allotments; compliance with Companies Act provisions.
- Reserves & Surplus: Scrutiny of movements (creation, utilization) in reserves like Securities Premium, Capital Reserve, General Reserve, Retained Earnings. Dividend declaration and payment compliance.
5. Income & Expenses
- Revenue Recognition: Adherence to AS/Ind AS 115 (e.g., point of sale, percentage of completion for contracts).
- Cut-off: Ensuring income/expenses pertain to the correct period.
- Classification: Correct allocation to appropriate heads (e.g., Cost of Goods Sold, Administrative Expenses, Finance Costs).
- Authorization: Supporting approvals for significant expenditures.
6. Internal Financial Controls (IFC) & Internal Audit
- Design & Implementation: Assessment of adequacy and effectiveness of controls over financial reporting and key processes (purchases, sales, payroll, treasury).
- Operating Effectiveness: Testing whether controls are functioning as designed throughout the period.
- Fraud Risk: Evaluation of controls designed to prevent/detect fraud.
- Internal Audit Function: Review of scope, findings, and management’s response (if applicable).
7. Statutory & Regulatory Compliance
- Companies Act, 2013: Compliance with provisions on accounts, audits, board reports, director disclosures, RPTs, CSR, board meetings, AGMs.
- Tax Laws: TDS/TCS compliance, GST input credit reconciliation, advance tax, income tax returns, tax assessments.
- Industry-Specific Laws
- RBI (NBFCs/Banks)
- FEMA (foreign exchange)
- SEBI (listed entities)
- Labour Laws (PF, ESI, Gratuity)
- CARO 2020: Fulfillment of specific reporting requirements (e.g., fixed asset records, fraud reporting, internal audit).
8. Related Party Transactions (RPTs)
- Identification Ensuring all RPTs are properly identified and disclosed.
- Approvals: Verification of Board/Shareholder approvals as per Companies Act thresholds.
- Arm’s Length Basis: Assessment of whether transactions are at fair market value.
9. Management Representations & Estimates
- Key Assumptions: Review of assumptions used in key accounting estimates (e.g., asset life, warranty provisions, defined benefit obligations).
- Management Letter: Obtain formal written representations from management on financials, disclosures, and compliance.
10. Audit Execution & Reporting
- Auditor Independence & Appointment: Confirmation of eligibility, independence, and proper appointment/ratification of the auditor.
- Documentation: Adequacy of audit working papers (Planning, Risk Assessment, Procedures, Conclusions).
- Audit Report: Formulation of audit opinion (Unmodified/Modified); inclusion of CARO annexures, if applicable.
- Going Concern: Assessment of the entity’s ability to continue operations in the foreseeable future.
Full Statutory Audit Checklist for Indian Companies
The checklist for statutory audit of a company can vary with its size, nature of business, and specific legal requirements.
Here’s how a checklist may look like:
How Can PKC Help With Statutory Audits?
✅Deep India regulatory expertise ensures full Companies Act compliance
✅Sector-specialized auditors understand your unique industry risks
✅Leverage advanced audit technology for efficiency and accuracy
✅Robust internal control evaluation strengthens financial governance
✅Streamlined processes minimize business disruption during audits
✅Proactive fraud risk assessment integrated within statutory audits
✅Dedicated senior partner oversight guarantees quality deliverables
✅”Zero Surprise” approach through transparent communication pre-audit.
✅Future-proof audits anticipating evolving regulations and standards.
Benefits of Following a Statutory Audit Checklist For Companies
Some of the top benefits of following a Statutory audit checklist for companies include:
- Enhanced Financial Accuracy: Ensures financial statements are free from material misstatements, presenting a true and fair view.
- Strict Legal Compliance: Guarantees adherence to all mandatory regulations under the Companies Act, CARO, and tax laws, avoiding penalties.
- Stronger Internal Controls: Identifies and helps rectify weaknesses in financial processes, boosting operational integrity.
- Efficient Audit Process: Streamlines preparation and execution, significantly reducing time, cost, and disruption for management.
- Effective Fraud Mitigation: Systematically verifies transactions and assets, proactively detecting and deterring potential fraud.
- Reduced Regulatory & Reputational Risk: Minimizes exposure to fines, legal actions, and damage to the company’s reputation.
- Increased Stakeholder Confidence: Builds trust with investors, lenders, and regulators by demonstrating robust financial governance and transparency.
Frequently Asked Questions
- What is a statutory audit?
A statutory audit is a legally mandated review of a company’s financial records to ensure accuracy and compliance with applicable laws.
- What documents are needed for a statutory audit?
Key documents include financial statements, ledgers, bank statements, tax filings, invoices, and board meeting minutes.
- Who can conduct a statutory audit?
Only a qualified Chartered Accountant (CA) or an auditing firm registered with the ICAI can perform a statutory audit.
- What is included in a statutory audit checklist?
The checklist includes verifying financial records, checking statutory dues, reviewing compliance with laws, and internal control assessment.
- What are the penalties for non-compliance with statutory audit requirements?
Penalties may include fines for the company and penalties for responsible officers under the Companies Act.
