Frequently Ask Questions Statutory Audit
Ans. All public and private limited companies have to undergo a statutory audit. Irrespective of the nature of the business or turnover, these companies are mandated to get their annual accounts audited each financial year. Meanwhile, a limited liability partnership (LLP) has to undergo a statutory audit only if its turnover in any financial year exceeds INR 4 million or its capital contribution exceeds INR 2.5 million.
The purpose of the statutory audit is to determine whether a company is providing an accurate representation of its financial situation by examining the information, such as books of account, bank balance, and financial statements.
Statutory audit is governed under the Companies Act, 2013, and Companies (Audit and Auditors) Rules, 2014.
As per the law, only an independent chartered accountant, or a chartered accountant firm, or limited liability partnership firm (LLP) with majority of partners practicing in India are qualified for appointment as an auditor of a company.
The Companies Act, 2013 specifically disqualifies the following individuals or firms from becoming an auditor:
- A corporate body other than the LLP registered under the Limited Liability Partnership Act, 2008;
- An officer or employee of the company;
- A person who is a partner with an employee of the company or employee of a company employee;
- Any person who is indebted to a company for a sum exceeding INR 1,000 (US$14) or who have guaranteed to the company on behalf of another person a sum exceeding INR 1,000 (US$14);
- Any person who has held any securities in the company after one year from the date of commencement of the Companies (Amendment) Act, 2000; or
- Any person who has been convicted by a court of an offence involving fraud and a period of 10 years has not elapsed from the date of such conviction.
At each Annual General Meeting (AGM), the shareholders of the company must appoint an auditor who holds the position from one AGM to the conclusion of the next AGM. The Companies (Amendment) Act, 2017 maintains that the auditors can only be appointed for a maximum term of five consecutive AGMs.
For non-compliance with a statutory audit, fines range from INR 25,000 to INR 500,000 for the company.
The auditor must follow the auditing standards as recommended by the Institute of Chartered Accountants of India (ICAI). In case the auditor uncovers any fraud during the audit must report it to the government immediately.After the audit is completed, the auditor should submit the audit report to the members and shareholders of the company.