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What Is Statutory Audit? 

Meaning of a Statutory Audit:

Statutory Audit means a type of audit mandated by the law or a statute to make sure that the book of accounts is true and fair which is presented to the public and regulators. A statutory audit is a mandatory audit of a company’s financial records by an external entity. A statutory audit is another name of a financial audit. It is essentially an audit of the final statements of a company, i.e. the profit and loss and the balance sheet.

What is the Purpose of a Statutory Audit?

The main purpose of statutory audit is to provide an independent, true and fair picture of the financial position of the Company to the shareholders. This audit is required by a statute or law that oversees the principles and ethics of a company. A statutory audit examines bank accounts, financial statements, transactions, bookkeeping records, ledgers, and other key documents provided for tax purposes and government obligations in general.

What is the Applicability of Statutory Audit?

As per Companies Act 2013 and Companies (Audit and Auditors) Rules, 2014, all public and private limited companies are mandated by law (or stature) to conduct a statutory audit of the financial documents and filings. In fact, the business turnover and the nature of the business of public and private limited companies don’t matter in the case of the statutory audit.

In the case of LLP (Limited Liability Partnership) firms, only these companies are mandated to perform the statutory audit:

  • Annual turnover crosses Rs 40 lakh or
  • Capital contribution is more than Rs 25 lakh

Who can be Appointed as Statutory Auditor?

A practicing chartered accountant or a Chartered accountant firm or LLP can be appointed as a statutory auditor of a company.

What is the Process of Statutory Audit?

The process of statutory audit starts as soon as the company is registered. The entire statutory audit procedure is exhaustive and depends on the nature of the business.

Every public and private company or LLP company that meets the above criteria should appoint an auditor within 30 days of the company’s registration.

During each AGM, the shareholders also recruit an external auditor, who holds the position from the conclusion of one AGM to the next.

As per the Companies Act (Amendment) 2017, no auditor for statutory audit can hold the consequent position more than five times.

What is the Penalty of non filing or delay in filing Statutory Audit Report?

In the case of non-compliance of statutory audit, Govt can impose a fine between Rs 25,000 to Rs 5,00,000. The defaulting officer can be imprisoned for one year and imposed a penalty between Rs 10,000 to Rs 1,00,000 or both.

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Note: This Post was last updated on November 2, 2022

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