4 Points You Must Know About Statutory Audit
1. Management Responsibility :
It is the responsibility of the management or the owner of the business to maintain accounting records as per the law. The accounts should be free from any material errors or fraudulent entries. The owner is ultimately responsible, even if the accounts department commits the errors.
2. Auditor Responsibility:
It is the responsibility of the statutory auditor to express an option on the status of books of account. The auditor has to check and express his opinion on whether the financial statements prepared from the books of the account are true and fair. He can be held liable if he does his job negligently.
3. Observations and Qualifications:
The auditor is free to certify the financial statements true and fair subject to his observations and qualifications. The observations and qualifications put by the auditor in his audit report are of utmost importance.
4. Understanding Audit Report:
You must discuss the audit report with your auditor so that you can understand it clearly and request him to incorporate your explanation against any qualification.
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FAQ`s Regarding Statutory Audit
A statutory is made mandatory by law. Its purpose is to check the truthfulness and accurate representation of financial position by evaluating information, accounting records, and statements. The companies Act 2013 consists of all the rules and provisions relating to the appointment of auditors, his removal, rights and duties, remuneration, etc.
It is essentially an audit of the financial statements of a company at the year-end. The purpose of this Audit is to ensure that the Company’s accounts represent a fair and true picture of the Company’s current financial position on the balance sheet date.
The rules and regulations for statutory Audit of companies regarding the appointment of auditors, qualifications, disqualifications of auditors, etc., are mentioned in The Companies Act 2013.
Yes, a tax audit is a statutory audit because it is required under the Income Tax Act.
• It increases the trustworthiness of the published financial statements and records.
• Improves the reliability and integrity of the organisation as the financial reports are free from error, fraud and misrepresentation, and any inaccuracies after the Audit.
• It ensures the management that they have efficiently performed their job.
• It Improves the effective functioning of the internal control system. Where internal controls are inadequate, the auditor provides recommendations for improvement.
• It Minimises the risk of fraud in an organisation.
• Internal Audit is voluntary, and it is at the choice of the management to get it done. Management does not want to be responsible and held guilty in case of any irregularities at the time of statutory Audit; that is why an Internal Audit is done.
• Statutory Audit is mandatory and looks into the effectiveness of the financial statements of the Company.
• The management cannot decide the scope of statutory Audit, but in the case of internal Audit, the scope is determined by the mutual consent of the management and the auditors.
• Statutory Audit is done only by the Practicing Chartered Accountants, not being an employee of the organisation, whereas Internal Audit can be done even by the employees of the Company,
• A Statutory Auditor of the Company cannot be its internal auditor.
Banks have characteristics that differentiate them from other commercial enterprises. A special audit is required for banks because of the particular nature of risk involved and the scale of banking operations. Every banking company prepares a Balance Sheet and a Profit and Loss Account to be audited by a Chartered Accountant.