Hi folks, Have you heard about statutory audits? In this article, we, from Indiataxfile, try to help you understand statutory audits.
Let’s talk about the statutory audit. It is the process of checking a company’s financial records, transactions, and statements. It is done by an independent auditor. It ensures that the financial information follows that law. Here is what you need to know.
- Purpose: Statutory audit’s purpose is to make sure shareholders and creditors feel confident. It ensures that the company’s financial statements are true, legal, and honest.
- Requirement: Statutory audits are essential for specific entities. That is a company under the Companies Act, 2013 in India. It makes sure that things are transparent.
- Significance: This helps to find out any financial issues like fraud or mistakes. It also makes sure the company follows the rules. It also gives useful insight for making future decisions.
We believe now you have a little bit of an understanding of Statutory Audit. Let’s deep dive into Statutory Audits. It is very important to be honest and follow the law in the business world. In this article, let’s take a closer look at what they are, why they matter, and what they involve.
What is the Statutory Audit?
Here are some important jobs, which statutory audits do.
Checking Financial Statements: Statutory audits are all about making sure a company’s financial statements are right. Auditors check the accuracy of things like balance sheets and income statements.
Spotting Problems: Statutory Audits help catch any unwanted stuff happening in a company. Auditors are checking anything fishy, like unauthorized transition or signs of bad management.
Following the Rules: Every company in the idea has to do a statutory audit according to law. Auditors make sure that the company follows all transaction laws, tax laws, and other legal stuff. If they do not follow then they can have big fines or other legal trouble.
What Do Statutory Audits Cover?
Statutory audits are more than just a number.
- Checking the Money Stuff: Auditors check the company’s financial records and transactions deeply. They want to make sure everything is sorted out properly.
- Looking at How Things Work Inside: Auditors also check out the company’s internal system. They make sure that everything runs smoothly, mainly when it comes to money.
- Making Sure Everything Adds Up: It also makes sure the company’s things like depth and buildings are real and the same as it says.
- Playing by the Accounting Rules: The Institute of Chartered Accountants of India(ICAI) set some rules. Auditors’ responsibility is to make sure the company must follow the rules.
- Letting Everyone Know What’s Up: Finally, auditors write a report to tell everyone what they found. Statutory audits help company leaders and others spot problems and ensure companies stay honest, clear, and legal. They make sure everyone knows the company is doing things the right way.
Process of Conducting a Statutory Audit:
Let’s break down the steps involved in a statutory audit, making it easy to understand:
- Choosing Auditors: First, the company’s top authorities select qualified auditors. These people are experts outside the company who will analyze their financial records. The company directors are responsible for sending them a detailed official letter.
- Planning and Risk Check: Based on the official letter, the auditor starts by understanding company workflow. They look at what could go wrong. Then they make a plan for the audit. This is a detailed plan including what they will check, how they will do etc.
- Doing the Audit: Next comes the actual audit. Based on the plan, they check everything like contracts, invoices, and other legal papers. They also talk to the people in the company to understand their workflow.
- Reporting the Findings: Once the audit is down. Then they prepare a detailed report. This report included company financial statements and any problems they found.
Key Components of a Statutory Audit
Let’s explore the main areas auditors focus on during a statutory audit:
1. Financial Statements
- Balance Sheet: The balance sheet includes the company’s assets, debts, and ownership.
- Income Statement: The auditor reviews the company’s financial activities like earnings and spending,
- Cash Flow Statement: They analyze the company’s cash movements.
2. Books of Accounts: Auditors analyze the company’s financial records like ledgers and journals. They make sure transactions are recorded properly and follow all accounting rules.
3. Bank Balances and Transactions: They make sure the company’s bank statement matches its records as mentioned. They also check bank activities like loans and payments for accuracy.
4. Compliance with Accounting Standards: It is about checking the company follows accounting rules. Which was set by regulators.
Comparison of Different Audits:
Sure, here’s a concise comparison of Tax Audit, Compliance Audit, Statutory Audit, and Internal Audit in table format:
| Aspect | Tax Audit | Compliance Audit | Statutory Audit | Internal Audit |
|---|---|---|---|---|
| Purpose | Ensure tax compliance | Verify adherence to rules and regulations | Ensure financial transparency and compliance | Evaluate internal controls and efficiency |
| Applicability | Mandatory under tax laws | Voluntary or regulatory requirement | Mandatory for certain entities under law | Conducted as per organizational needs |
| Auditor | Chartered Accountant | External auditors or compliance professionals | External or internal auditors | Internal audit department or external auditors |
| Scope | Tax-related transactions and compliance | Broad, covering various regulations and policies | Comprehensive financial and legal compliance | Operational processes and risk assessment |
| Reporting | Form submission with observations | Detailed reports on compliance status | Audit report expressing opinion on financials | Internal audit reports with findings and actions |
| Frequency | Annually, if applicable | As needed or mandated by regulations | Annually for companies, as per legal requirement | Ongoing, periodic assessments |
| Focus Areas | Tax compliance and deductions | Specific areas based on regulations or industry | Financial statements, internal controls | Operations, risk management, governance |
| Legal Basis | Tax laws | Industry-specific regulations or standards | Companies Act, other relevant laws | Organizational policies and best practices |
So, we hope this article increases your knowledge about statutory audits. They are like financial detective, who make sure that the company is not doing any funny business. And if you need more clearly then contact us. We have more than 13 years of experience in taxation and finances. We believe that we may help you in a good way. So why are you waiting? Contact us Right now.