Statutory Audit
Audit required by the law governing an entity, with the report in the prescribed form.
Typically 2–4 weeks of fieldwork, depending on the size of the entity and the state of the records
A statutory audit is an audit the law requires, as distinct from one management commissions. Every company incorporated in India requires one regardless of turnover, and several other forms of entity require one under the statute governing them.
The auditor's responsibility is to form an opinion on whether the financial statements give a true and fair view, and to report on the specific matters the statute requires. That opinion is addressed to the members, not to management.
What the audit covers
The work involves understanding the entity and its control environment, assessing where material misstatement is most likely, and designing procedures to address those risks. Verification is selective and risk-based rather than an examination of every entry.
Alongside the opinion, the report addresses the specific matters the applicable law requires — the maintenance of proper books, compliance with accounting standards, and other reporting requirements that apply to the entity.
Independence
The value of a statutory audit rests on the auditor being independent of the entity. That places limits on the other services an auditor may provide to the same client, and those limits are not negotiable.
Where we audit an entity, we will tell you clearly which other services we are not able to provide to it, so there is no confusion later.
Who needs this
- Every company incorporated in India, irrespective of turnover
- Limited liability partnerships crossing the prescribed thresholds
- Entities required to be audited under the statute governing them
- Trusts and societies where their governing instrument or law requires audit
Eligibility and conditions
- Books of account maintained for the financial year
- Financial statements prepared and approved for audit
- Appointment of the auditor in accordance with the applicable law
What this covers
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Audit under applicable standards
Carried out in accordance with the Standards on Auditing.
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Statutory reporting
The report issued in the form the applicable law prescribes.
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Observations discussed first
Findings raised with management before the report is finalised.
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Control observations
Weaknesses noted during the audit reported so they can be addressed.
How the process works
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Appointment and scope
Appointment confirmed and the reporting framework established.
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Planning
Risk assessment and the audit approach for the year.
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Fieldwork
Testing and verification, with queries raised as they arise.
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Discussion
Findings and proposed adjustments discussed with management.
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Report
Opinion issued with the annexures the statute requires.
Documents required
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Financial statements
Draft statements for the year under audit.
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Books of account
Ledgers, cash book and journals for the year.
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Bank statements and reconciliations
For every account operated.
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Statutory registers and minutes
As required by the governing law.
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Statutory returns filed
GST, TDS and income tax returns for the year.
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Confirmations
Balances confirmed from major debtors, creditors and lenders.
The list above is indicative. Additional documents may be required depending on your case and the current departmental requirements.
Frequently asked questions
What is the difference between a statutory audit and a tax audit?
A statutory audit is required by the law governing the entity — every company requires one regardless of turnover — and results in an opinion on whether the financial statements give a true and fair view.
A tax audit is required under the Income Tax Act where turnover or gross receipts cross the prescribed limits, and results in a report on specified particulars relevant to computing taxable income. An entity may require both.
Does an audit guarantee that there is no fraud in my business?
No. An audit provides reasonable assurance, not absolute assurance. It is designed to detect misstatement that is material to the financial statements as a whole, using risk-based and selective testing rather than examination of every transaction.
Where detecting irregularity in a specific area is the objective, an internal audit or a focused review with an agreed scope is the more suitable engagement.
Statutory audit due?
Tell us about the entity and the financial year and we will confirm the scope and timeline involved.