An audit is a review of data to ensure its reliability. Audits are used in every industry to guarantee the reliability and accuracy of crucial data. A financial audit verifies the veracity of the information contained in an entity’s financial statements and books of accounts.
Although an organization’s employees can conduct internal financial audits, an audit from an independent, external body is thought to be more trustworthy. A test of controls, a test of transactions, a test of balances, and an analysis of procedures may all be included in a financial audit.
What is Statutory Audit?
A statutory audit is one that is conducted when a financial audit is mandated by law. It is an external audit in which the auditor is chosen in accordance with the relevant statute or law. A “Company audit” is more commonly known as a “Statutory audit” in India. Generally speaking, statutory auditors can be appointed from among practicing chartered accountants.
Types of Statutory Audit under various laws in India
Company Audit under Companies Act 2013
A company must protect the interests of its lenders and shareholders because its liability is constrained. The Indian Companies Act mandates that every company have its accounts audited in accordance with the rules outlined in the act in order to ensure this. Every year, both private and public companies must have their financial statements and accounts audited. An independent, active chartered accountant conducted this audit. The Companies Auditor Report Order 2016 must be followed when preparing the audit report (CARO 2016).
Tax Audit under Income Tax Act 1961
More than half of India’s total tax revenue comes from income taxes. According to the guidelines and reporting requirements outlined in the act, certain businesses are required to have their accounts audited by practicing chartered accountants in order to verify the various expenses and deductions claimed by businesses and to reduce tax evasion. The Income Tax Rules’ Form 3CD must be followed when preparing the audit report.
GST Audit under CGST Act 2017
The Goods and Services Tax (GST), an indirect tax, went into effect on July 1st, 2017. A GST audit was necessary to confirm the accuracy of the assesses declared turnover, input tax credits used, taxes paid, and refund claims. After the fiscal years 2020–21, this audit is no longer applicable.
Cost Audit under Companies Act 2013
This audit entails a review of the cost records kept by businesses engaged in both regulated and unregulated industries. According to the Companies Act’s turnover requirements, an audit is appropriate. A licensed cost accountant conducts it.
Bank Audit under the Banking Regulation Act, 1949
All banking institutions as outlined in the 1949 Banking Regulation Act are covered by it. The financial records and other operations of the bank may be audited by a practicing Chartered Accountant appointed by the bank after consultation with RBI.
The long-form audit report (LFAR) required by RBI must be submitted with the audit report.
Forensic Audit
When there is a possibility of fraud, theft, or other financial wrongdoings, this audit is carried out. Investigations are conducted as part of this type of audit in order to gather data that can be used as evidence in court. Such audits are typically requested by market regulators like the RBI and SEBI for banks and listed companies. A forensic audit report has no set structure.
Trust & Cooperative Society Audit
Additionally, two audit types are required by the respective societies act and the income tax.
Procedure for Statutory Audit
Understanding a business entity’s operating environment and controls is necessary for a statutory audit.
Understanding the Business Environment
The auditor must review the rules and regulations of the law that established the terms of his appointment. He must also look into the organization’s operations and legal status. The process entails sending the client questionnaires, checklists, and other official notifications.
Understanding Controls
The effectiveness of standard operating procedures is crucial to the health of an organization. By consulting the company’s working papers, an auditor can gain an understanding of the control of operations. Asking the staff and consulting audit reports and financial statements from the prior year can provide additional insight.
Test of Controls
It entails assessing standard operating procedures and safeguards against fraud and mistakes. Do they concur with the regulations’-imposed standards and best practices for the industry? The auditor examines whether operating controls are sufficient, carried out correctly, and understood by all involved employees.
Test of Account Details
Analyzing the specifics of the transaction is required. such as vouching invoices, verifying bank reconciliations against subsequent month’s bank statements, sending bank & customer confirmations, and vouching for subsequent receipts in receivables. Significant analytics examine data from a wider angle, such as a comparison of the current ratio or the debt level this year with previous years.
Test of Account Balances
Account balances are tested by auditors to make sure that there are no omissions from the financial statements and that they accurately portray the financial situation.
Depending on the requirements of your business firm, a qualified chartered accountant can carry out various audits. A statutory audit is a prerequisite for a typical business. It might also require an annual tax audit, transfer pricing audit, and GST audit, depending on its size and volume of transactions. Get in touch with CAnest to meet your Statutory audit requirements.
