A statutory audit is an independent examination of an entity's financial statements, required by law, to express an opinion on whether they give a true and fair view. It strengthens the credibility of financial information for shareholders, lenders, regulators and other stakeholders.
Who Requires a Statutory Audit
- Every company registered under the Companies Act, 2013, irrespective of size or turnover
- LLPs with turnover above ₹40 lakh or partners' contribution above ₹25 lakh
- Banks, insurance companies and other regulated entities under their respective laws
- Cooperative societies, trusts and other entities as required by their governing statutes
Objectives
Primary objective: to express an opinion on whether the financial statements present a true and fair view in accordance with the applicable financial reporting framework.
Secondary objectives:
- Detect and prevent errors and fraud
- Evaluate internal financial controls
- Report on matters required by law, such as the Companies (Auditor's Report) Order (CARO)
Our Audit Process
- Planning – understand the business, assess risks and set materiality
- Internal control review – evaluate the design and effectiveness of controls
- Substantive testing – test transactions and balances through vouching, verification and analytical procedures
- Review – evaluate accounting policies, estimates and disclosures
- Reporting – issue the auditor's report and communicate observations to management
Types of Audit Opinion
- Unmodified opinion – the financial statements give a true and fair view
- Qualified opinion – true and fair except for specific matters
- Adverse opinion – the financial statements do not give a true and fair view
- Disclaimer of opinion – the auditor could not obtain sufficient evidence to form an opinion
Appointment of Auditors
The board appoints the first auditor within 30 days of incorporation. Thereafter, shareholders appoint the auditor at the AGM for a term of five years, subject to rotation requirements for listed and certain other companies. Only practising chartered accountants or firms of chartered accountants can be appointed.
Frequently Asked Questions
Is statutory audit required for a company with no turnover?
Yes. Every company must get its accounts audited, even with no business activity.
What is CARO?
The Companies (Auditor's Report) Order requires auditors of specified companies to report on matters such as fixed assets, inventory, loans, statutory dues and fraud.
Can a company remove its auditor before the term ends?
Yes, but only with a special resolution and prior approval of the Central Government.