Audit & Assurance Services

A statutory audit is conducted to assess whether a company complies with applicable laws, rules, regulations, and accounting standards, and whether its financial statements present a true and fair view of its financial position.

It applies to all companies registered in India under the Companies Act, 1956 and the Companies Act, 2013, as well as Limited Liability Partnerships (LLPs) having:

• Turnover exceeding ₹40 lakhs, or
• Contribution exceeding ₹25 lakhs

Section 139(1) of the Companies Act, 2013, read with Rule 3 of the Companies (Audit & Auditors) Rules, 2014, states that every company shall appoint an individual or firm as an auditor.

Section 139(6) of the Act states that the first auditor of the company must be appointed within 30 days of its registration.

Steps Generally Followed in Conducting a Statutory Audit

• Issuing a letter of engagement
• Obtaining NOC from the previous auditor
• Filing of Form ADT-1 with ROC
• Obtaining appointment letter and board resolution copy
• Filing a declaration of no disqualification with the company
• Assessment of internal controls
• Formulation of audit program, procedure action plan, and calendar
• Conducting audit as per IGAAP, Companies Act, ICAI Accounting Standards, and Auditing Standards
• Forming an opinion on the financial statements
• Reporting to shareholders
• Attending AGM

Statutory Audit Requirements

1. Companies (Private, Public, Section 8, etc.)

Applicability:
All companies, including Private Limited, Public Limited, One Person Company, Section 8 (Non-Profit) Company, Nidhi Company, and Producer Company, must conduct a statutory audit.

Threshold:
Mandatory regardless of turnover, profit, or business activity.

Legal Basis:
Companies Act, 2013.

Purpose:
Ensures compliance with corporate governance and provides assurance on financial accuracy.

Penalty for Non-Compliance:
Directors and officers may face fines and legal consequences as specified under the Companies Act.

2. Limited Liability Partnerships (LLPs)

Applicability:
LLPs must conduct a statutory audit if:

• Annual turnover exceeds ₹40 lakhs, or
• Capital contribution exceeds ₹25 lakhs

Legal Basis:
LLP Act, 2008.

Purpose:
Ensures compliance with financial disclosure requirements for stakeholders and regulatory authorities.

Penalty for Non-Compliance:
Monetary penalties under the LLP Act.

3. Proprietorship Firms

Applicability:
Tax Audit is mandatory if:

• Business turnover exceeds ₹1 crore, or
• Professional gross receipts exceed ₹25 lakhs

Legal Basis:
Section 44AB of the Income Tax Act, 1961.

Purpose:
Ensures accurate tax reporting and compliance with tax laws.

Penalty for Non-Compliance:
Penalty of 0.5% of turnover (maximum ₹1,50,000).

4. Partnership Firms

Applicability:
An audit is mandatory under tax laws if turnover or receipts exceed limits prescribed under Section 44AB.

Legal Basis:
Indian Partnership Act, 1932 and Income Tax Act, 1961.

Penalty for Non-Compliance:
Same as proprietorship firms.

5. Societies and Trusts

Applicability:
Mandatory if registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882, especially for claiming tax benefits under Sections 12A and 80G of the Income Tax Act.

Purpose:
Ensures proper utilisation of funds and regulatory compliance.

Penalty for Non-Compliance:
Loss of registration benefits or tax exemptions.

6. Cooperative Societies

Applicability:
Statutory audit is mandatory irrespective of turnover as per the respective State Cooperative Societies Act.

Purpose:
Ensures transparency and proper management of funds.

Penalty for Non-Compliance:
Fines or penalties under the respective State Act.

Important Areas of Consideration in a Statutory Audit

1. Testing of Internal Controls

A test of controls assesses the effectiveness of systems used to detect and prevent fraud and errors. If controls are weak, auditors increase substantive testing procedures.

2. Verifying Balance Sheet Items

Auditors evaluate the accuracy of Balance Sheet items using supporting documents such as:

• Secured loans: Bank statements, reconciliation statements, and sanction letters confirming interest rates
• Fixed assets: Purchase invoices, depreciation workings, and unrecorded asset details

3. Verifying Profit & Loss Account Items

Key procedures include:

• Year-over-year comparison and industry benchmarking
• Trend analysis
• Review of sales and purchase breakups
• Verification of capitalisation of preliminary expenses within five years
• Checking closing stock valuation as per AS-2

4. Testing TDS-Related Compliances

• Checking voucher entries
• Verifying source documents
• Reconciling books with challans and returns

5. Other Important Checks

• Verification of dividend payments within legal limits
• Checking compliance of Provident Fund, ESIC, Gratuity, Bonus, and Leave Encashment
• Ensuring loans and advances comply with the Companies Act, 2013 and Income Tax Act, 1961

About Ajay D Kumar & Associates

Ajay D Kumar & Associates is a reputed statutory audit firm in India, known for successfully handling statutory audit assignments.

Statutory audits are conducted to report the financial position of companies to the Government of India and the relevant authorities. If you are looking for a reliable statutory auditor in Delhi, our team is committed to delivering professional and compliant audit services.