The audit is an independent examination of the financial statements of an organization by an auditor. It is conducted to ensure that the financial statements represent a true and fair view of the financial position of the organization. Auditor presents the independent auditor’s report to the stakeholders of the company. There are various types of audit which are conducted in India. However, some audits are mandatory and some audits are voluntary.
Statutory Audit is a type of audit which is mandated by a Statute or Law to ensure a true and fair view of the financial statements of an organization is presented to the regulators and the public. Statutory audit is to be conducted by qualified Chartered Accountants who are independent of the Business. Further, the independent auditor’s report prepared by the Statutory Auditor on his/her findings must be presented in the format prescribed by the regulator.
- Statutory Audits can be mainly classified into two types of audits i.e. company audits and tax audits.
- Company Audit is governed by the Companies Act, 2013 and every company, irrespective of its turnover or nature of business or capital must have its book of accounts audited each financial year.
- And, the books of accounts of a Limited Liability Partnership (LLP) must be audited if it has an annual turnover of Rs.40 lakhs or more or capital contribution of Rs.25 lakhs or more.
- Tax audit, on the other hand, is required for a certain class of taxpayers who exceeded a certain threshold of turnover or receipts. Tax audit is governed by the Income Tax Act, 1961.
Statutory Auditor Appointment:
- Statutory auditor appointment will be made for five years and form ADT-1 will be filed for a 5-year appointment. The company auditor appointment can also be made for a period of 1 year, renewable at each annual general meeting.
- Although the appointment of statutory auditor is made for a term of five years, the company will have to place the matter for ratification at every AGM. Members will have to ratify the appointment of such Auditor in Every AGM by passing an Ordinary Resolution.
- The first statutory auditor appointment is to be made within one month from the date of incorporation of the company in the first board meeting.
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FAQS
What does a Chartered Accountant do?
A Chartered Accountant provides consultancy about accounting, taxation, auditing, and, other matters. He/she also conducts the audit of financial statements of your organization as per the applicable law and provides an independent auditor’s report.
What is Auditing and why it is necessary?
Auditing is an independent examination of the financial statements of an organization by an auditor. It is conducted to ensure that the financial statements represent a true and fair view of the financial position of the organization and accurate financial information can be provided to the management, shareholders, and investors. He prepares the independent auditor’s report which contains the summary of the examination of financial statements carried by the auditor.
What is the maximum period for which an individual CA or a CA firm can serve a company as an auditor?
An individual CA can serve for a term of five years and a CA firm can serve for two terms of five years as an auditor to a Company.
What if at any AGM appointment of an auditor is not ratified by the members?
If the company auditor appointment is not ratified by the members of the company, The Board of Directors shall appoint another Individual or Firm as its auditor. It will be considered as casual vacancy.
Chartered Accountant by profession, CA Sanket Agarwal has an experience of above11 years in Cross Border compliance , Import Export , International Taxation & is a passionate content creator.