Simple steps to make Statutory Audit Effective.

 Introduction:

1. What is a Statutory Audit?

Statutory Audit is a type of audit which is mandated by a Law or a Statute to ensure the          books of accounts presented to the regulators and public are true and fair.

2. Is Statutory Audit Mandatory for Every Company?

Statutory Audit as the name suggests is a compulsory audit for all companies. Every entity which is registered under the Companies Act, as a Private Limited or a Public Limited company has to get its books of accounts audited every year. 

3. What is the requirement of Statutory Audit?

It is important that we understand the need for a statutory audit to be carried out. In case of a company, the owners of the company are the shareholders. However, they do not run or manage the day to day affairs of the company. This is done by the board of directors and the management of the company.                                                                                                         

So the shareholders need assurance that the accounts maintained and published by the company are authentic and genuine. This is why the law requires that an independent auditor to conduct a statutory audit.

4.Appointment and Duties of Statutory Auditors.

The provisions relating to statutory audit and auditors is the sections 139 to 147 of the new Companies Act 2013. It states the method of appointing an auditor, the eligibility of a statutory auditor and the duties and responsibilities of such an auditor. Some important points with respect to the auditor are,

• A statutory auditor has the right to access all of the company’s financial books, records, and information. These should be made available to him at all times. He also has the right to seek any further information he thinks is necessary for his audit
• He has the duty to write an auditor’s report. In this, he must state if the financial statements of the company give a true and fair representation of their financial position and affairs.
• If he is writing a qualified report, i.e. the statements are not true and fair, he must clearly state his reasons for the same.
• In case the auditor uncovers any fraud during his audit he must report it to the Central Government authorities.
• While auditing and providing the Audit Report he must follow the Auditing Standards as per the ICAI guidelines.

How can a Statutory Audit Can be conducted in an effective manner:

1. Review of Trial Balance: You need to review entire accounts, so firstly you need an understanding of the company's incoming and outgoing. compare with the previous year figures and note down the points you have to verify and mention the result after verification.

                                                     2019                   2020             Diff            Ex: Plant and Machinery    12,00,000         10,00,000      2,00,000     Verify additions and deletions in the year   

Verified the additions and deletions and found in order.

2.Verification of Incomes: Select some sample of the transactions and verify the procedure of entering into contract, reviewing necessary documents which includes terms and conditions and recognition of income. Miscellaneous incomes should be thoroughly verified.

Ex: sold to xyz 14kg @ 65/-

Verify the sales order which specifies the Qty, price and terms and conditions.

Verify the sales invoice whether it is sold at same qty and price.

Verify the discounts and commissions if any given to the transaction.