Statutory Audit
A statutory audit is a legally required review of the financial statements of an organization. It ensures that the financial records and statements of the company are accurate and compliant with applicable laws, regulations, and accounting standards. The primary goal of a statutory audit is to provide an independent opinion on the fairness and accuracy of the financial statements.
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Table of Content
- Statutory Audit – An Overview
- Applicability for Statutory Audit
Statutory Audit - An Overview
A statutory audit is a legally required review of the financial statements of an organization. It ensures that the financial records and statements of the company are accurate and compliant with applicable laws, regulations, and accounting standards. The primary goal of a statutory audit is to provide an independent opinion on the fairness and accuracy of the financial statements.
Applicability for Statutory Audit
Entity Type | Audit Requirement |
Private Limited Companies | Required if turnover > ₹1 crore or capital > ₹50 lakh. |
Public Limited Companies | Required for all public limited companies, regardless of turnover or capital. |
Listed Companies | Required for all listed companies. |
Limited Liability Partnerships (LLPs) | Required if turnover > ₹40 lakh or capital contribution > ₹25 lakh. |
Non-Profit Organizations | Required if receiving government grants or foreign contributions. |
Banks & Financial Institutions | Required as per regulatory guidelines from RBI/SEBI. |
Partnership Firms | Required if turnover > ₹1 crore. |
Cooperative Societies | Required as per state-specific cooperative laws. |
Trusts | Required for charitable/religious trusts receiving substantial funding (e.g., under section 12A of the Income Tax Act). |
Benefits of Statutory Audit
A statutory audit provides numerous advantages for businesses, organizations, and stakeholders. Here are the key benefits:
- A statutory audit provides an independent review of the financial statements, ensuring that they accurately reflect the financial position of the company.
- It helps in identifying discrepancies or errors, ensuring the financial statements are free from material misstatements.
- Statutory audits ensure that the organization is complying with local regulations such as the Companies Act, 2013, Income Tax Act, and other relevant laws.
- It helps businesses avoid penalties, fines, or legal consequences for non-compliance.
- A clean audit report increases the credibility of the company’s financial statements, building trust with investors, creditors, customers, and other stakeholders.
- It enhances the company’s reputation in the market, potentially attracting more investment and business opportunities.
- Statutory audits help in identifying fraudulent activities or financial mismanagement, preventing financial irregularities.
- Auditors review internal controls, highlighting weaknesses in the company’s systems and suggesting improvements to reduce the risk of fraud.
FAQs for Statutory Audit
A statutory audit is a legally required review of the financial records and statements of an organization by an independent auditor to ensure accuracy, completeness, and compliance with applicable laws and accounting standards.
A statutory audit is conducted by a qualified external auditor, who is typically a Chartered Accountant (CA) or an auditing firm.
It ensures that a company's financial statements present a true and fair view of its financial position and performance, and that the company complies with statutory regulations.
Companies and businesses whose turnover exceeds a specified limit (as per the relevant tax laws) or those required by law (like public companies or certain private companies) must undergo a statutory audit.
The auditor's role is to examine the company's financial records, assess the internal control systems, and provide an independent opinion on whether the financial statements are accurate and compliant with laws.
Documents include financial statements (Balance Sheet, Profit & Loss), tax returns, bank statements, payroll records, purchase and sales invoices, and contracts, among others.
A statutory audit must be conducted annually, in line with the company’s fiscal year.
An internal audit is conducted by a company's own staff to assess internal controls, whereas a statutory audit is performed by an external auditor to ensure compliance with legal requirements.
