Practice

Statutory audit

Audit of companies and other entities required to have their accounts examined under the Companies Act, 2013 and allied statutes, with reporting in the form prescribed by ICAI and the law.

A statutory audit is the independent examination of an entity’s financial statements, performed so that the auditor can express an opinion on whether those statements give a true and fair view, in accordance with the applicable financial reporting framework. For companies, the duty is set out in the Companies Act, 2013. The auditor is appointed by the members, reports to them, and works to the Standards on Auditing issued by the ICAI.

What the engagement covers

The work is not a recasting of the trial balance. It is an evidence-based examination of how the entity has recognised, measured and disclosed its transactions and balances. In a typical eastern-UP engagement — a manufacturing unit in GIDA, a trading company in Gorakhpur city, a hospitality company in Ayodhya, or an agro-processing company around Basti — the file will usually include:

Planning, risk assessment and materiality, documented to SA 315 and SA 320.
Tests of controls where they exist and tests of details on material classes of transactions — purchases, sales, inventory, borrowings, related parties.
Physical verification of cash, stock and fixed assets, or observation of management’s count.
Review of subsequent events, going-concern indicators and litigation.
CARO, 2020 reporting, where applicable, including matters on inventory, loans, related parties and internal audit.
The auditor’s report in the SA 700 series form, with any qualifications, emphasis or other-matter paragraphs that the facts require.

How an engagement usually proceeds

A discussion of the entity, its books, its previous auditor and any known reporting issues — independence is confirmed before acceptance.
A letter of engagement setting out scope, fees are not published on this site, and the responsibilities of management and of the auditor.
Interim work on internal controls and cut-off, often timed around the last quarter.
Year-end fieldwork at the books location — Basti, Gorakhpur, Ayodhya or the factory — followed by partner review.
Reporting to those charged with governance, then the signed report for filing with ROC and for the members.

Local context

Companies in Gorakhpur often hold inventory across GIDA sheds and city godowns; stock observation needs a plan, not a single afternoon. In Basti, agro-processing units have seasonal inventory and cane or paddy payable cycles that affect cut-off. In Ayodhya, hospitality and construction-in-progress require attention to revenue recognition and capitalisation. None of this changes the Standard; it changes how the Standard is applied.

Related reading: how to appoint a statutory auditor and ROC annual filings.

Frequently asked

Which entities in eastern UP typically need a statutory audit?

Every company registered under the Companies Act requires a statutory audit, regardless of turnover. Certain LLPs, co-operative societies and other bodies may also be required to appoint an auditor under their governing statute.

Is a tax audit the same as a statutory audit?

No. A statutory audit reports on the financial statements under company law. A tax audit under section 44AB of the Income-tax Act reports specified particulars to the tax department. Many companies need both. See the comparison.

Can the auditor also keep the books?

Independence rules restrict a statutory auditor from writing the books of the same company. Accounting may be done in-house or by a separate professional. The firm discusses this at the time of appointment.