Duties and Responsibilities of Statutory Auditor

Overview :An auditor’s primary duty is to conduct audit of the financial statement of the company, which is an essential regulatory compliance to ensure that a company adheres to the financial norms and regulations stipulated by the government. It enables companies to maintain transparency across the corporate vertical. This guide educates you about the duties of an auditor in a company.

Auditing is an integral part of a company’s compliance. It mainly involves meticulous inspection and verification of the company’s financial documents and records to confirm whether it adheres to financial regulations and tax norms. The objective of Auditing is to verify and validate the accuracy of a company’s financial records and transactions. It ensures transparency, thus instilling trust in the company’s investors and stakeholders.

Now, the question arises: who is responsible for carrying out these essential auditing tasks for the company’s financial statements? The simple answer is an Auditor, who is appointed under section 139 of the Companies Act, 2013. Only a chartered accountant or a firm of chartered accountants in full-time practice can be appointed as the company’s statutory auditor. Let’s explore further the rights and duties of an auditor.

Who is an Auditor?

In simple terms, an auditor is an individual who is appointed to inspect the books of accounts of a company meticulously and express his opinion, whether the financial statement of the company reflects the true and fair position of the financial position of the company or not. This inspection ensures the validity and accuracy of the financial records mentioned in the books.

Based on his inspection, an auditor also needs to provide his own unbiased opinion to the company’s directors on the economic situation of the company, which depends upon the basis of his examination of the company’s book of records. As said earlier, only a CA or a firm of CAs in full-time practice can be an auditor for a company. Auditors are independent individuals/entities and should not receive any other remuneration or benefits from the company other than the remuneration for the audit of the company.

Eligibility Criteria for an Auditor

Must be a qualified chartered accountant and active member of ICAI.
Must have a valid and subsisting certificate of practice (COP).
Must be in full-time practice as a Chartered Accountant.
Should have a vast experience in accounting or auditing.
A thorough understanding of accounting principles, including generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), is required.
The auditor must ensure independence and objectivity throughout the entire audit process. In other words, it means avoiding any conflicts of interest or being impartial during the assessment of the company’s financial statements and providing a valuable and biased opinion to the directors.

Duties of an Auditor

If we look at the duties of an auditor, they have been laid down by the Companies Act 2013 and provided under Section 143. This Act explains an auditor’s duties in a simple and easy-to-understand manner; some important duties of an auditor are given below;

Prepare Audit Report: In simple words, an Audit Report is an appraisal of a business’s financial position. the auditor is bound to prepare an audit report depending on the company’s financial statements. The books of accounts examined by him should be managed and maintained as per the relevant laws and regulations.
The auditor must ensure that the financial statements of the company adhere to the relevant provisions of the Companies Act 2013, relevant Accounting Standards, etc. It is also important to ensure that the financial statements provide a true and fair view of the financial position of the company.
Make Inquiries: Among several duties of an auditor, making inquiries is imperative, especially if he feels it is necessary. Some of the inquiries include, but are not limited to, go as the following:
- Loans taken and advances made based on security are well-secured, and the terms of loans or such transactions are fair.
- Any personal expenses (which do not pertain to the business) are charged to the Revenue Account
- Whether loans and advances are made, they are represented as deposits
- whether financial statements follow the relevant accounting standards
Adhere to Auditing Standards: The Central Government creates Auditing Standards with the joint efforts of the National Financial Reporting Authority (NFRA). These standards simplify and ensure more accuracy in the auditing tasks conducted by the auditor. It is the auditor’s primary responsibility to adhere to those standards while executing his tasks, which helps boost his efficiency.
Reporting of Fraudulent activities: Generally, auditors may be suspicious of fraud within the organisation while conducting their auditing tasks, especially in cases where the financial statement and data provided don’t seem appropriate or correct. If auditors face this situation, they must report it to the Central Government immediately and as stipulated by the Act.
Comply with the Code of Ethics and Code of Professional Conduct: As a professional, an auditor must follow the Code of Ethics as well as the Code of Professional Conduct. Confidentiality and sufficient attention while performing his duties are two key aspects of the code of ethics and professional conduct.
Additionally, professional scepticism is also an important aspect. An auditor must have a critical mind and be well capable of looking out for mishaps, errors, or any fraud in the financial accounts books of the company.
Assist in Investigation: In case if a company is under investigation, the auditor must support the officers or investing team if needed. It is an auditor’s responsibility and professional ethics to assist in the investigation.

Note : With the above points, it can be observed that the auditor’s responsibilities are varied, and therefore, they have a significant and extensive impact on a company.

Conclusion

An auditor’s duties are important for a company, not only for maintaining better company finances but also for ensuring compliance with prescribed regulations. Auditing of a company's financial statements ensures transparency across the business landscape and makes a company more reliable. The aforementioned duties of an auditor are varied which have a great and extensive impact on a company.

Faq's

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