Audit means an examination of the financial transaction in a company be it a private limited companies or public limited companies in India. As we all know almost every financial law prescribes audit of the business such as VAT audit, Service Tax Audit etc likewise statutory audit is a mandatory requirement prescribed under the Companies Act, 2013.
Though statutory audit is a mandatory requirement, still it is beneficial for the company as well because it helps to keep a check on the financial health of the company, liquidity flows, analyze operational efficiency and much more. Therefore, it is important form government as well as company’s point of view.
Statutory audit is conducted by a qualified practising Chartered Accountant. Every company irrespective of the fact of its nature of business or turnover must have its books of account audited each financial year.
At the outset, the company shall appoint auditor being Chartered Accountant. As per new Companies Act, 2013, the auditor shall be appointed for a term of 5 years. There are some other qualifications as prescribed under Companies Act, 2013 such as only an independent chartered accountant or a firm of the chartered accountant can be appointed as auditor of the company.
Process of appointment of auditor:
Advantages of Statutory Audit:
- Statutory audit increases the reliability of the financial information.
- It shows that how strong the internal control system is of the company.
The Importance of statutory audit can be realised from the current business scenario. Of late, we all are the witness of few big corporate scams; the root cause of all those scams and fraud were related to financial ill-health of the entity e.g. Satyam scam in 2008 which trembled the stock market and erode the investor confidence.
Therefore, the statutory audit is an important tool to unearth the grey area in financial books of the company and presents a true and fair view of company’s financial status.