Statutory Audit under Companies Act 2013 is one of the major requirements for Private Limited Companies incorporated in India. This blog explains some of its crucial aspects like legal framework, prescribed deadlines, eligibility criteria, the appointment of an auditor, benefits, and consequences of not conducting timely audits. A thorough reading of the blog will impart full information about this crucial compliance and ensure your company’s adherence to regulatory standards. For further guidance, you are free to contact our startup advisors!
Legal Framework for Statutory Audit under Companies Act 2013
Is Statutory Audit Mandatory for All Companies?
Due Date for Conducting Statutory Audit under Companies Act 2013
Appointment of Auditor for Conducting Statutory Audit
First Auditor Appointment under Companies Act
Subsequent Auditor Appointment
Benefits of Statutory Audit under Companies Act 2013
- Financial Accuracy and Transparency: Statutory audits meticulously examine financial statements, ensuring accuracy and transparency. This not only complies with regulatory standards but also instills confidence in stakeholders regarding the company’s financial health.
- Enhanced Credibility: The audited financial statements lend an enhanced level of credibility to the company’s financial reporting. Investors, creditors, and other stakeholders rely on audited accounts for informed decision-making, bolstering the company’s reputation in the market.
- Risk Mitigation: Through in-depth scrutiny, statutory audits identify and mitigate financial risks. This proactive risk management contributes to the prevention of financial irregularities and fraud, safeguarding the company’s assets and interests.
- Legal Compliance: Compliance with statutory audit requirements ensures adherence to legal standards, shielding the company from potential legal issues. It demonstrates a commitment to corporate governance and regulatory responsibility.
- Informed Decision-Making: Management gains valuable insights from the audit process, enabling informed decision-making. The audit highlights areas for improvement, financial efficiency, and potential growth strategies, empowering management to steer the company strategically.
Legal Consequences of Not Conducting Statutory Audit
- Fines for Companies: Section 147 of the Companies Act stipulates that a company failing to conduct a statutory audit may face fines ranging from INR 25,000 to INR 5 lakhs.
- Fines for Auditors: Auditors themselves are subject to penalties under Section 147. If an auditor fails to comply with audit obligations, they may face fines ranging from INR 25,000 to INR 5 lakhs.
- Continued Non-Compliance: In cases of persistent non-compliance, the Companies Act allows for daily fines until compliance is met. The daily penalty can range from INR 500 to INR 5,000 for both companies and auditors.
Other Types of Audit under Companies Act, 2013
- Internal Audit: Conducted internally by the company’s team or outsourced professionals. Focuses on evaluating and improving the effectiveness of internal controls and risk management.
- Cost Audit: Mandated for certain specified companies. Examines the cost records to ensure adherence to cost accounting standards.
- Secretarial Audit: A comprehensive review of the company’s compliance with legal and regulatory requirements. Conducted by a qualified company secretary to ensure adherence to statutory provisions.
- Tax Audit: Required under the Income Tax Act for companies meeting specified turnover criteria. Ensures accuracy and compliance with tax laws in financial reporting.
- Compliance Audit: Focuses on ensuring adherence to specific laws, regulations, and company policies. Aims to identify and rectify any instances of non-compliance.
- Operational Audit: Evaluates the efficiency and effectiveness of operational processes. Aims to enhance overall operational performance and identify areas for improvement.
The process of Statutory Audit under the Companies Act 2013 stands as a cornerstone for transparent financial reporting, regulatory compliance, and corporate governance. Beyond a legal obligation, it serves as a robust mechanism for businesses to enhance credibility, mitigate risks, and provide stakeholders with accurate financial insights. The meticulous appointment of auditors, compliance with due dates, and an understanding of the legal consequences underscore the significance of statutory audits in fostering a healthy corporate ecosystem. Embracing the broader spectrum of audits outlined by the Companies Act ensures a holistic approach to financial management and regulatory adherence, promoting the long-term sustainability and resilience of businesses in today’s dynamic corporate landscape.