Statutory Audit
Statutory Audit is a type of audit which is mandated by a Statute or Law to ensure true and fair view of the book of accounts of a Business is presented to the Regulators and the Public. Unlike internal audit, Statutory Audits are not optional and must be performed if a business satisfies certain criterias. Statutory audits must be completed by qualified Chartered Accountants who are independent of the Business. Further, the report prepared by the Auditor on his/her findings must be presented in the format prescribed by the Regulator.
Statutory Audits can be mainly classified into two types, company audits and tax audits. As per Companies Act, 2013, every company, irrespective of its sales turnover or nature of business or capital must have its book of accounts audited each financial year. Thus, the Board of Directors of a Company are required by law to appoint an Auditor within 30 days of incorporation and thereafter conduct an audit of its financial statements each financial year. The accounts of a Limited Liability Partnership (LLP) must be audited if it has an annual turnover of Rs.40 lakhs or more or Rs.25 lakhs or more capital contribution. Tax audit on the other hand is required for Proprietorships and Partnership Firms that have cross a certain threshold of sales.
How Does a Statutory Audit Function?
The term statutory signifies that statutory auditing is necessary. A statute is a regulation or law enacted by the associated government of the organisation's legislative branch. Multilevel laws may be passed by the Centre or State. In a company, a regulation also applies to any law set by the management team or board of directors of the organisation.
An audit is an examination of records held by an agency, company, government department, or individual. This usually involves analysing different financial records or other areas. During a financial audit, reports of a company with respect to revenue or benefits, returns on investment, expenditures, and other things can be included in the audit process. Often, a variety of these elements are used when determining a cumulative ratio.
The objective of a financial audit is often to assess whether funds have been properly handled and that all records and filings required are accurate. Undergoing a statutory audit is not an implicit indication of misconduct. Instead, it is also a formality intended to help discourage crimes, such as misappropriating funds by ensuring a professional third party routinely scrutinises various documents. The same applies to other audit forms too.
Types of Statutory Audit
As per the Companies Act 2013, and Companies (Audit and Auditors) Rules, 2014, the following types of statutory audit exists (but are not limited to):
- Financial audit as prescribed under Section 139 of the Companies Act, 2013.
- Cost Audit as prescribed under Section 148 of the Companies Act, 2013.
- Secretarial audit as prescribed under Section 208 of the Companies Act, 2013.
- Tax Audit as prescribed under Section 44AB of the Income Tax Act, 1961.
- GST Audit as prescribed under 35(5) of the GST Act, 2017.
- Concurrent audit, branch audit, stock audit, etc. as prescribed under the Banking Act.
- Telecom Regulatory Authority of India (TRAI) recommends Billing & Metering Audit.
- National Health Mission (NHM) mandates Internal Audit/Concurrent Audit.
- Financial audit of banks, insurance companies, cooperative societies, partnership firms, LLPs, proprietorships, HUFs, societies, trusts, etc.
- A performance audit of cooperative societies under the Cooperative Societies Act.
- Audit of Stock Brokers and Credit Rating Agencies as prescribed by the Securities & Exchange Board of India (SEBI).
- Internal & Concurrent audit for Depository Operations under the National Securities Depository Limited (NSDL).
Created
& Posted by (Ramesh Kumar Gupta)
Senior
Accounts Manager at TAXAJ
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