Statutory audits in India: a mandatory process, but also a valuable tool.
This guide covers the essentials for businesses looking to undergo statutory audit and operating in India.
Statutory Audit India Requirements
A statutory audit in India is a mandatory examination of a company’s financial statements and records, as required by the Companies Act, 2013.
This audit is crucial for ensuring transparency and compliance with legal standards, and it serves to provide stakeholders with an accurate representation of the company’s financial position.
Legal Framework
Under the Companies Act, 2013, statutory audits are compulsory for all types of companies, including private limited companies, public limited companies, and even small companies.
Section 139 mandates that every company appoint an auditor at its first annual general meeting (AGM), who will serve until the conclusion of the sixth AGM, subject to ratification at each AGM.
Auditor Eligibility
The auditors appointed must meet specific eligibility criteria outlined in Section 139(2) of the Act.
This includes being a qualified individual or a firm (including limited liability partnerships) that is registered with the Institute of Chartered Accountants of India (ICAI).
Timelines for Conducting Statutory Audits
Statutory audits must be conducted annually and completed within six months from the end of the financial year.
For instance, if a company’s financial year ends on March 31, the audit must be finalized by September 30.
Consequences of Non-Compliance
Failure to conduct a statutory audit can lead to severe penalties for both the company and the auditor.
According to Section 147 of the Companies Act, fines can range from INR 25,000 to INR 5 lakhs. Additionally, non-compliance may affect a company’s credibility and its ability to raise funds or attract investors.
Types of Statutory Audits in India
Financial Audit
It is mandated by the Companies Act, 2013 and it examines financial statement accuracy and accounting standard compliance.
Tax Audit
It is required under the Income Tax Act, 1961 for qualifying businesses. It assesses tax compliance and income computation, and is performed by CAs or Tax Practitioners.
Cost Audit
It is mandatory for specific industries like pharmaceuticals and chemicals. It evaluates cost accounting records and procedures, ensuring proper maintenance of cost records.
Government Audit
It is performed by the Comptroller and Auditor General (CAG). It audits government departments and public sector undertakings, checking financial regularity and expenditure efficiency to ensure transparency in public financial management.
Bank Audit
This type of audit is conducted for scheduled commercial banks by empaneled Chartered Accountants. It verifies financial statements and risk management, ensuring compliance with RBI guidelines.
GST Audit
A GST audit, is mandatory for businesses with annual turnover above INR 2 crore,. It validates GST returns and tax payments to ensure compliance with Goods and Services Tax regulations.
Key Steps In Statutory Audits In India
The audit process typically includes the following :
Planning and risk assessment
The auditor assesses the client’s business risk and develops an audit plan accordingly. This includes identifying critical business areas and evaluating the likelihood of material misstatements.
Audit testing
The auditor tests the client’s internal controls and procedures to ensure effectiveness. It is typically succeeded by documentation review, employee interviews, and process observation.
Financial statement analysis
The auditor analyzes the client’s financial statements to identify potential errors or fraud. This includes reviewing balance sheet items, income statement items, and disclosures.
Audit reporting
The auditor writes a report detailing the audit findings in a format that the regulators dictate. The report is then shared with the client’s management and board of directors for further action.
Follow-up and closure
The auditor follows up with the client to ensure that all audit recommendations have been implemented. The audit is then closed once all outstanding issues have been resolved.
Top Benefits of Statutory Audits
A statutory audit can help identify errors and fraud in financial statements. This, in turn, can help improve the quality of financial reporting.
02 – To comply with regulations :
In many jurisdictions, businesses must undergo a statutory audit in India. This helps ensure that they are compliant with applicable laws and regulations.
03 – To attract investors :
statutory audit can help boost investor confidence in a business. This is because it provides an independent and objective assessment of the business’s financial statements and other information.
04 – To improve governance :
A statutory audit can help improve the governance of a business by identifying control weaknesses and recommending improvements.
05 – To minimize tax liabilities :
A statutory audit in India can help identify tax deductions and exemptions for which a business may be eligible. This, in turn, can help minimize the amount of taxes payable.
Why Opt For PKC Consultants For Statutory Audit In Chennai?
PKC India has a team of experienced chartered accountants and other professionals who can assist you with the statutory audit process, from planning to execution and reporting. We can help you ensure compliance with the requirements of the Companies Act, 2013 and other applicable laws and regulations. Key benefits of hiring us include:
We offer cost-effective and efficient statutory audits in Chennai consultation services to help you save time and money.
Our team comprises experienced and skilled professionals with decades of cumulative experience in helping leading organizations with statutory audits in Chennai.
We offer a comprehensive service that covers all aspects of the statutory audit process, from planning to execution and reporting.
We offer timely support and assistance to our clients, ensuring that all audit recommendations are implemented promptly to avoid penalties or fines.
We offer customized statutory audit services tailored to our client’s specific needs.
We have a stringent quality control process to ensure that the highest standards dictate all audits.
Frequently Asked Questions
What is a statutory audit in India?
A statutory audit is a legally required examination of a company’s financial records to ensure they present a true and fair view of its financial position and performance. It’s mandated by the Companies Act, 2013 and other relevant statutes.
How do I know if my business needs a Statutory Audit?
The requirements for a statutory audit in India depend on the organization’s legal structure. Private companies and public companies must have a statutory audit regardless of their revenue, profits, or losses. LLPs are required to have a statutory audit if their turnover exceeds Rs. 40 lakhs or if their contribution to the LLP exceeds Rs. 25 lakh, and so on.
How much does a Statutory Audit consultation cost?
The cost of our statutory audit in Chennai consultation services is very affordable. We offer a customized service tailored to our client’s specific needs, which helps them save time and money. To get an accurate quote, get in touch with us.
How long does a Statutory Audit take?
The duration of our statutory audit services depends on the size and complexity of the organization. On average, our audit services take between 4 to 12 weeks to complete.
How often is a Statutory Audit required?
The frequency of statutory audits in India depends on the organization’s legal structure. Get in touch with us to understand accurate details of how often you need them.
What are the benefits of opting for PKC’s Statutory Audit in Chennai services?
PKC’s experts have in-depth knowledge and experience in conducting audits as per the Indian laws and regulations. We help our clients to identify the potential risks and issues in their businesses and provide them with practical solutions to mitigate those risks.
What is the limit for statutory audit in India?
Most companies incorporated under the Companies Act, 2013 are required to undergo a statutory audit regardless of their turnover. However, certain exemptions exist for specific types of companies like One Person Companies (OPCs) under certain conditions.
Who requires a statutory audit?
Generally, all companies incorporated under the Companies Act, 2013 are required to have a statutory audit. This includes private limited companies, public limited companies, and other forms of companies registered under the Act.
Can a CA be a statutory auditor?
Yes, a CA is qualified to perform a statutory audit. There are also certain restrictions on who can be appointed as an auditor, such as not being an employee or officer of the company being audited, to maintain independence and objectivity.
