What Is The Process Of A Statutory Audit In India?
By: Rubina S
Tags: Company, Finance, Statutory Audit, Business

What Is The Process Of A Statutory Audit In India?

Statutory Audit: It is an official inspection based on the Companies Act of 2013. It should be conducted every year in every company by an independent body: an auditor or an audit firm. It is to make sure the financial records of an individual or a company. In simple terms, it is an audit of the account books. Rubina S Sep 9, 2019·3 min read

Despite the size of the business, everyone should submit audit reports every year. In India, a statutory audit is an essential process. It is a complex process. But it can be understood. This article outlines the process of statutory audit using simple terms.

The auditor should understand the company completely:

First of all, the auditor should understand the company and the business. It will help to clear some practical issues. To avail of this to the auditor, the company should provide enough information. Here, information includes the history, position, and location of the company, products, the process of production, stocks, shares, marketing, services, financial statements, accounts, etc.

Assets

The auditor should physically visit and verify the fixed assets. The auditor should verify that there is no material discrepancy.

Inventories

The auditor must physically verify the inventories of the company. The procedure of physical verification must prove that the inventories are reasonable and adequate to the nature of the business.

Loans

The auditor should ensure that the company’s loan management is taking place according to Section 189 of the Companies Act of 2013.

Internal control system: The auditor should confirm the quality of the internal control procedure for the investment on fixed assets and inventories and the sales of the products.

Deposits

The auditor should verify the bank account details of the company. The auditor must consider the deposits and withdrawals on the bank accounts of the company too.

Statutory Dues

The auditor must verify the regular deposit of statutory dues like income tax, Goods and Service Tax (GST), wealth tax, sales tax, customs duty, cess tax, etc., with the appropriate authorities. The auditor must check the statutory due arrears.

Profit and Loss

The auditor must check the company’s turnover and provide the amount they have earned or lost during the current financial year.

Other Dues and Payments

The auditor must ensure the repayment of loans and bankruptcy of the company to its bankers, debentures, or any other financial institutions. The auditor should check if the company gives any guarantee for loans to any financial institutions on behalf of others.

Loan Usage

The auditor must verify the proper usage of loans too. The auditor must ensure whether the company serves the purpose of the loan.

Report on Fraud: The auditor must certify the company that they are not involved in any fraud or provide misstatements concerning the submission of financial statements.

The features of the statutory audit are the submission of legal documents on financial statements. They are the audit balance sheet, notes on accounts including 3CA/3CB, 3CD, purchase bill file, sales bill file, bank reconciliation statement, electricity bill, telephone bill, rent bill, etc. These are some of the essential features of auditing. It slightly varies with the institution.