A statutory audit is a legally mandated verification of the quality of the financial statements and documents of a corporation or government. A statutory audit is intended to determine whether an entity offers a fair and correct portrayal of its financial status by reviewing details such as bank statements, accounting reports and financial transactions. Company is regulated under the Companies Act 2013. This act requires that each corporation that is listed under the Companies Act be audited of its accounts. Therefore an audit would be regarded as a statutory audit performed by such a corporation that is regulated by company law.
Frequently Asked Questions
An audit is a study of financial reports, documents and statements and providing an opinion on whether or not financial records are prepared in compliance with the law by which the audit is performed. If a regulation or legislation controls this audit, it is classified under statutory audit. To clarify, a corporation is regulated by the Companies Act 2013. This act allows each company licensed under the Companies Act to have its accounts audited by a Chartered Accountant who practices. Therefore an audit would be regarded as a statutory audit performed by such a corporation that is regulated by company law. When performing an audit, all rules set by the Companies Act and the widely agreed auditing standards should be adhered to. The required accounting principles should also be adhered to. An auditor should be an independent specialist who should have appropriate law expert expertise. Furthermore, the opinion expressed in the legislative audit should be unbiased and free from uncertainty. When the statutory audit is to be performed in compliance with the statute, it must be performed according to the audit framework established by that legislation.
Statutory audit is a mandatory audit for all businesses as the name suggests. Any organization that is registered as a private limited company or a public limited company under the Companies Act has to audit its account books every year. This kind of audit isn't conditional, it depends on the type of agency.
The statutory audit scope means the activities to be performed when an audit is being carried out. It can also be considered a statutory auditor's duties.
The different steps were taken during the course of a legislative audit follow:
- Identify and review all the overall aspects of a company's financial statements that require auditing.
- Auditors ought to ascertain the authenticity, adequacy, and reliability of the information and source data. To this end the auditor may review the accounting and internal control processes.
- Auditors may assess that the disclosure in the financial statements of the total relevant details was made in compliance with the legislative and accounting requirements.
- A systematic study and review of a method of internal control and accounting.
- Verification of accounting transactions and balances by search, inquiry and verification tests required.
- Financial statements are contrasted to summaries of transactions and activities reported in the accounts underlying them.
- Assessing the accuracy of the accounting policies adopted as the management prepares the financial statements and also sufficient disclosure to the effect.
However, a statutory auditor can not be held accountable for conducting duties outside its audit scope. Also, if the audit scope restriction has an effect on his unqualified opinion,
he should state the same in his report as a qualified or disclaimer opinion.
An audit that the legislation (law) needs is known as a Legislative audit. Tax Audit is an audit that is made mandatory under the Income Tax Act if the assessees' turnover exceeds the prescribed cap. Statutory auditing is carried out by professional auditors, while a qualified Chartered Accountant performs the tax audit.
- Statutory audit made obligatory by-law.
- The Law also defines its purpose.
- The Companies Act of 1956 set down requirements for a statutory auditor.
- Similarly the statute has set down the statutory auditor's powers, duties and liabilities.
Section 44AB does not state that the tax audit is to be carried out only by the statutory auditor appointed under the Companies Act. Hence the tax audit may be performed in practice either by the statutory auditor or by some other CA.
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