Statutory Audits

Statutory Audit in India – Compliance with the Companies Act

A statutory audit is a legally required review of a company’s financial records, transactions, and statements to ensure compliance with the Companies Act, 2013 and other financial regulations. It helps businesses maintain transparency, credibility, and accountability while preventing fraudulent practices.

In this guide, we will cover:✅ What is a statutory audit?✅ Who is required to conduct a statutory audit?✅ Who performs the audit?✅ Key compliance requirements under the Companies Act✅ Penalties for non-compliance

1. What is a Statutory Audit?

A statutory audit is a mandatory external audit conducted by a practicing Chartered Accountant (CA) to verify a company’s financial statements, transactions, and compliance with applicable laws.

Purpose of a Statutory Audit

📌 Ensures accuracy in financial statements📌 Maintains regulatory compliance under the Companies Act, 2013📌 Provides stakeholders with transparency about the company’s financial position📌 Builds credibility with investors, banks, and regulatory bodies📌 Prevents financial fraud and ensures accountability

💡 Is a statutory audit different from a tax audit?Yes! A statutory audit is conducted under the Companies Act, while a tax audit is required under the Income Tax Act, 1961.

2. Who is Required to Conduct a Statutory Audit?

📌 All companies registered under the Companies Act, 2013, must undergo a statutory audit, regardless of turnover or profit.

🔹 Mandatory for:✔️ Private Limited Companies (Pvt Ltd)✔️ Public Limited Companies✔️ One Person Companies (OPC)✔️ Limited Liability Partnerships (LLPs) (if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh)✔️ Companies with Foreign Investments (FDI/Foreign Subsidiaries)

🔹 Exemptions:❌ Small proprietorships and partnerships (unless specified under tax or regulatory laws)

📌 Even if a company has zero revenue or is inactive, it must still undergo a statutory audit annually.

3. Who Performs a Statutory Audit?

A statutory auditor must be a practicing Chartered Accountant (CA) or an audit firm registered with The Institute of Chartered Accountants of India (ICAI).

Appointment of Statutory Auditor

📌 First Auditor: Appointed within 30 days of company incorporation📌 Subsequent Auditors: Appointed by shareholders in the Annual General Meeting (AGM)📌 Tenure: A statutory auditor can serve for a maximum of 5 consecutive years (for individual CAs) or 10 years (for audit firms)

💡 How to Appoint a Statutory Auditor?1️⃣ Pass a board resolution for auditor appointment2️⃣ File Form ADT-1 with the Ministry of Corporate Affairs (MCA) within 15 days of appointment3️⃣ Auditor must accept the appointment in writing

4. Key Compliance Requirements Under the Companies Act, 2013

📌 The statutory audit must comply with the provisions of:✔️ Section 139 – Appointment of auditors✔️ Section 143 – Powers and duties of auditors✔️ Section 144 – Restrictions on providing non-audit services✔️ Section 145 – Auditor’s signing requirements✔️ Section 147 – Penalties for non-compliance

Statutory Audit Process

🔹 Step 1: Planning & Risk Assessment✔️ Identify financial risks and business operations✔️ Understand internal controls and processes

🔹 Step 2: Examination of Financial Records✔️ Review balance sheets, profit & loss statements, cash flow statements✔️ Verify bank statements, invoices, tax filings, and contracts

🔹 Step 3: Compliance Check✔️ Ensure adherence to Companies Act, GST, Income Tax, and other regulatory norms✔️ Verify statutory dues, employee payroll compliance, and corporate governance

🔹 Step 4: Audit Report Preparation✔️ Prepare Audit Report (Form AOC-4)✔️ Submit the report to MCA and company management

💡 Final Deliverable: The auditor provides an Independent Audit Report, stating whether the financial statements are true and fair.

5. Penalties for Non-Compliance

Non-compliance with statutory audit requirements can lead to serious legal consequences for both the company and its officers.

For the Company

📌 Fine of ₹25,000 to ₹5,00,000 (US$351 – US$7,029)

For the Officers (Directors, CFO, CEO)

📌 Fine of ₹10,000 to ₹1,00,000 (US$140 – US$1,405) OR📌 Imprisonment for up to 1 year OR both

💡 What Happens If a Company Fails to Appoint an Auditor?✔️ The Board must appoint one within 30 days✔️ If it fails, shareholders must appoint within 90 days✔️ Continued non-compliance may lead to penalties & legal action from MCA

6. Benefits of a Statutory Audit

✅ Ensures Legal Compliance – Prevents penalties and legal issues✅ Improves Financial Transparency – Builds credibility with investors & stakeholders✅ Enhances Business Decision-Making – Helps in long-term planning✅ Increases Investor Confidence – Essential for securing funding & loans✅ Reduces Fraud Risks – Identifies financial mismanagement and errors

7. How to Choose a Statutory Auditor?

When selecting a statutory auditor, consider:

📌 Experience in Company Audits – Expertise in Pvt Ltd & LLP audits📌 Registration with ICAI – Must be a Certified Chartered Accountant📌 Understanding of Business Industry – Knowledge of your sector’s compliance norms📌 Transparent Fees & Professional Ethics – No conflict of interest📌 Efficient Reporting & Advisory – Clear audit reports & financial recommendations

💡 Need Expert Statutory Audit Services?Our team of ICAI-certified Chartered Accountants ensures your business remains 100% compliant with the Companies Act, 2013!

📞 Call: 9449546524 | 🌐 Visit: clientsmaster.com

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