Types of Statutory Audits

1. Tax Audit
   Conducted under the Income Tax Act, 1961, a tax audit involves reviewing an individual’s or business’s tax records to ensure compliance with applicable tax laws.

2. Company Audit
   This involves auditing the company’s financial statements—Balance Sheet, Profit & Loss Account, Cash Flow Statement, and related notes—at the close of each financial year.
   
   

Objectives of Statutory Audit

Primary Objectives

• Examination of financial statements

• Verification of accuracy in accounting entries

• Proper classification of capital and revenue items

• Validation of transactions and reporting

• Accurate presentation of assets, liabilities, and financial performance

• Assessment of fund utilization and appropriations

Subsidiary Objectives

• Detection and prevention of errors

• Identification of fraudulent activity
  
  

Statutory Audit Procedure

To ensure a comprehensive and compliant audit, a structured approach is followed:

1. Evaluation of Operating Environment

The auditor examines whether the company’s internal controls and ethical practices align with industry norms and regulatory requirements.

2. Review of Internal Controls

This includes studying prior audit reports, speaking with staff or consultants, and analyzing internal mechanisms to evaluate their effectiveness in detecting errors or fraud.

3. Examination of Account Balances

The auditor scrutinizes key balances to ensure they are accurate, complete, and in line with applicable laws and standards.

4. Verification of Account Details

A deeper inspection into bank balances, insurance records, and other financial relationships to confirm correctness and consistency in reported figures.

Process of Statutory Audit

1. Review
   Understanding the client’s business environment, internal systems, books of accounts, and control processes.

2. Audit Execution
   Sampling of financial data and transactions to verify accuracy and compliance with accounting standards and regulations.

3. Reporting
   Preparation of the audit report expressing the auditor’s opinion on the financial statements’ fairness, accuracy, and whether they are free from material misstatements.

Types of Audit Opinions

• Unmodified Opinion: The financial statements are free from material misstatements.

• Qualified Opinion: There are some issues, but they don’t misrepresent the overall financial position.

• Adverse Opinion: Financial statements are materially misstated and do not present a true and fair view.

• Disclaimer of Opinion: Auditor could not obtain enough information to form an opinion.

Who Can Be Appointed as a Statutory Auditor?

As per Section 141 of the Companies Act, 2013, only a practicing Chartered Accountant in India can be appointed as a statutory auditor. If the audit is assigned to a firm, the majority of its partners must be practicing CAs in India.

Key Takeaways

• A Statutory Audit is a legal requirement to ensure the accuracy of a company’s financial records.

• It helps in assessing the correct application and management of funds.

• Statutory audits are applicable to companies, banks, financial institutions, and other regulated entities.

Need a Reliable Statutory Audit Consultant in Maharashtra?

Our team at SR Mahajan & Co. specializes in conducting statutory audits with precision, compliance, and efficiency. We ensure your reports meet all regulatory standards and provide actionable insights for financial integrity.

Get in touch with us today to book a consultation!