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Statutory Audit & Auditor – A Modern Day Thrust and Thirst


An audit is an independent examination of records, books of accounts held by an entity that involves the analysis of financial records or other areas. There are different types of audits that are conducted in India. However, some audits are compulsory and some audits are voluntary. Statutory audit in India means an independent review of the entity’s financial statements and records and enables an auditor to form an opinion on it.  Statutory Audit is authorized by a Statute or Law to ensure that a true and fair view of the financial statements of an organization is presented to the regulators and the public. Statutory audit is the official inspection of a company’s accounts usually by an independent body of persons. Statutory Audit is conducted to assure that all the financial details of the company are appropriate and no material information is missing. The Statutory auditor presents the independent auditor’s report to the stakeholders of the company. Several organizations must conduct statutory audits, including the following:

  • Banks
  • Brokerage firms
  • Insurance companies
  • Municipalities

The objective of a statutory audit is to conclude that an organization presents a transparent representation of its financial position by examining information like bookkeeping records, financial transactions, and bank balances, etc. The independent auditor’s report prepared by the Statutory Auditor on his/her findings must be presented in the format prescribed by the regulator or under laws.

  • Statutory Audits can generally be classified into two types of audits i.e. Company audits and Tax audits.
  • Company Audit is conducted as per 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.
  • 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 certain threshold limits of turnover or receipts.  A person carrying on business or profession if his total sales, turnover or gross receipts business for the year exceed or exceeds Rs. 1 crore in case of business and Rs. 50 lakhs in case of profession compulsorily required to get their accounts audited under the provisions of Income Tax Act, 1961.

Appointment of Statutory Auditor (Section 139 of Companies Act, 2013) 

  • The first statutory auditor is appointed within one month from the date of incorporation of the company in the first board meeting and in case of failure to appoint the auditors, then members shall appoint auditors in the Extraordinary General meeting within 90 days and such audit hold office till the conclusion of Annual General meeting.
  • An individual shall be appointed as an auditor for a term of not more than consecutive 5 years whereas a firm shall be appointed as an auditor not more than 2 terms of 5 consecutive years.
  • Statutory auditor appointments will be made for a period of five years and form ADT-1 will be filed for a 5-year appointment. The company auditor appointment can also be made for  1 year, renewable at each annual general meeting.
  • The statutory audit of a company can be conducted by more than one auditor.
  • Even if the appointment of a statutory auditor is made for a period of five years, the company will have to place the matter for ratification at every AGM. Members will have to the ratification of the appointment of such an Auditor in Every AGM by passing an Ordinary Resolution.
    (Deleted via amendment act, 2017 dated 07.05.2018)
  • In case of a casual vacancy, the vacancy is will be filled by the Board of Directors within 30 days. If such a casual vacancy is a result of the resignation of an auditor, it will be filled by members at a general meeting within 30 days from the recommendations of the board.
  • The remuneration of the auditor of the company shall be fixed in the general meeting by the members.

Benefits of Statutory Audit 

  • It increases the authenticity and credibility of financial statements as the financial statements of the company are being verified by an independent party i.e., the auditor.
  • It confirms that management has taken due care while delivering their responsibilities.
  • It also states regarding compliance among the non-statutory requirements like corporate governance etc.
  • The auditor also comments upon the strength of internal control within the organization along with internal checks among the departments or segments. He also suggests the area where internal control is prone and weak to risk. It helps the company to mitigate the risk and results in the improvement of the performance of the company.
  • The financial statement of the small company for whom audit might not be applicable get more values if it is audited one because with the help of the audited financial statements it becomes easier for the companies to get banking loan and other types of facilities on producing of financial statements which are audited by an independent auditor as the audited statements are more reliable and authentic.

Services rendered by a Statutory Auditor 

  • The auditor shall conduct the statutory audit the manner in which is laid down under section 143 of Companies Act,2013.
  • The auditor in his report shall specify all the matters as are enumerated section 143 of Companies Act 2013 and Rule 11 of Companies (Audit and Auditors) Rules 2014.
  • In the case of frauds, the auditor will report in the manner laid under Rule 13 of Companies ( Audit and Auditors) Rules 2014.
  • Any certification required as per law for the time being in force.

Services not to be rendered by a Statutory Auditor
The Statutory Auditor shall not render either directly or indirectly to the company or his holding or subsidiary company the following services: 

  • Accounting and Book Keeping service.
  • Development and Design of any financial information system.
  • Actuarial Services.
  • Investment Advisory Services.
  • Investment Banking Services.
  • Management Services
  • Any other services as may be prescribed by the Government.

The Internal Auditor cannot be appointed as a Statutory Auditor of the Company i.e. if Internal Auditor is the employee of the company; he is disqualified for appointment as a Statutory Auditor.  

Penalty for Contravention 

  • Where a company made some defaults in appointing an auditor, the company shall be liable to pay the fine which shall be from Rs. 25000 to Rs. 5,00,000 and the officer in default shall be liable to pay fine of Rs. 10,000 to Rs. 1,00,000 with an imprisonment of 1 year.
  • If an auditor has contravened any provisions knowingly or willfully intending to deceive the company or its shareholders or another person, he shall be liable with a fine of Rs. 50,000 to Rs. 25,00,000 or 8 times of the remuneration (Whichever is less) and punishable with imprisonment for a period of 1 year for a term which may extend to one year.

At AJSH, we assist our clients in dealing with various corporate matters (Company incorporations, Statutory Audits, ROC Compliances, Tax Audits) in India by providing them adequate support and guidance from our end. If you have any query, kindly contact us.


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