One of the main types of audits is a statutory audit. It is a legal requirement as per the state or national laws prevalent in the region. In India, the laws regarding a statutory audit are in the Companies Act, 2013. Let us explore the scope and advantages of a statutory audit.
A statutory 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. The purpose of a statutory audit is to ensure that these accounts of the company represent a fair and accurate picture of the company’s current financial position on the date of the balance sheet.
It is important that we understand the need for a statutory audit to be carried out. In case of a company, the owners of the company are the shareholders. However, they do not run or manage the day to day affairs of the company. This is done by the board of directors and the management of the company.
So the shareholders need assurance that the accounts maintained and published by the company are authentic and genuine. This is why the law requires that an independent auditor to conduct a statutory audit.
The independent auditor has full authority to check the financial records of the company and publish his findings via an auditor’s report. The shareholders and owners of the enterprise can then be assured of the authenticity and reliability of the financial statements.
Other stakeholders like creditors, employees, potential investors etc also benefit from the statutory audit. They too can base their decisions on these accounts, since they are authentic.
The provisions relating to statutory audit and auditors is the sections 139 to 147 of the new Companies Act 2013. It states the method of appointing an auditor, the eligibility of a statutory auditor and the duties and responsibilities of such an auditor. Some important points with respect to the auditor are,
- A statutory auditor has the right to access all of the company’s financial books, records, and information. These should be made available to him at all times. He also has the right to seek any further information he thinks is necessary for his audit
- He has the duty to write an auditor’s report. In this, he must state if the financial statements of the company give a true and fair representation of their financial position and affairs.
- If he is writing a qualified report, i.e. the statements are not true and fair, he must clearly state his reasons for the same.
- In case the auditor uncovers any fraud during his audit he must report it to the Central Government authorities.
- While auditing and providing the Audit Report he must follow the Auditing Standards as per the ICAI guidelines.
Browse more Topics under Types Of Audit
- Internal Audit
- Cost Audit
- Advantages and Limitations of Internal Audit
- Propriety and Efficiency Audit
- Secretarial Audit
- Other Forms of Audit
Solved Question for You
Q: What are the qualifications of a statutory auditor?
Ans: To be eligible as a statutory auditor, the person must be a Chartered Accountant, i.e. a member of the ICAI. In case of a firm, the majority of its members must be chartered accountants in their own right. Then the firm can be eligible to be in charge of a statutory audit of a company.