—Guide
Statutory Audit in India: What Auditors Check and How to Prepare
What a company's statutory audit covers under the Companies Act, the types of audit opinion, and how to prepare so the audit is quick and clean.
Every company in India must have its financial statements audited every year by an independent Chartered Accountant. For many founders, the audit is a black box that happens in July and August. This guide explains what the auditor actually does, and how to prepare.
What the Audit Is For
The auditor gives an opinion on whether the company's financial statements give a true and fair view of its financial position and results, in line with the applicable accounting framework. The audit follows the Standards on Auditing issued by the ICAI.
What the Auditor Checks
- Revenue: whether sales are real, complete and recorded in the right period.
- Bank and cash: through bank confirmations and reconciliations.
- Receivables and payables: through confirmations, ageing and subsequent receipts or payments.
- Inventory: existence and valuation, often through observing a physical count.
- Fixed assets: additions, disposals and depreciation.
- Loans, borrowings and related party transactions.
- Statutory dues: GST, TDS, PF, ESI and others, and whether they were paid on time.
- Provisions, contingent liabilities and events after the year end.
What the Auditor Reports
- The main audit report, with the opinion on the financial statements.
- A report under CARO 2020 on specific matters, unless the company is exempt.
- A report on internal financial controls over financial reporting, unless exempt.
- Other matters, including whether the company's accounting software kept an audit trail.
Types of Opinion
- Unmodified: the accounts give a true and fair view.
- Qualified: they do, except for specific matters.
- Adverse: they don't, because of pervasive misstatements.
- Disclaimer: the auditor couldn't obtain enough evidence to form an opinion.
How to Prepare
- Close and reconcile the books promptly after 31 March.
- Reconcile GST, TDS and statutory dues with returns and payments.
- Collect balance confirmations from major customers, suppliers and lenders.
- Keep supporting documents organised and easy to find.
- Prepare schedules for fixed assets, loans and related parties.
- Agree the audit timetable early, working back from the AGM date.
Independence
The statutory auditor can't provide bookkeeping, internal audit and certain other services to the company it audits. If your auditor also keeps your books, that needs to change.
Getting Help
Think Filing carries out statutory audits for private companies, with an independent audit team and a timetable planned around your AGM.