Statutory Audit – its Definition, requirement, checklist
What is a statutory audit?
A statutory audit is an independent assessment of the financial accounts of a company or institution. The auditor's role is to report on whether the financial statements issued by an organisation are 'true and fair', and meet all relevant guidelines or legal requirements. This in turn allows companies to guard against risk and plan for the future.
The auditing sector has been under scrutiny recently, with the government calling for reform following the collapse of high-profile firms whose audits have been called into question. Clearly it's vital that auditors recognise and report on any issues that emerge from the auditing process, so that any problems in the business can be addressed. Here at Perrys, we work with clients to provide effective and timely audits that meet and exceed all statutory obligations.
Statutory audit requirements
Not all companies or organisations must have a statutory audit. Small companies are usually exempt, unless they are charities (which must follow the specific guidelines for that sector) or members of a wider group.
To be exempt from audit, a small company must meet two out of three of the following criteria for two consecutive years (or its first year for new companies):
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Turnover should not be more than £10.2m
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The balance sheet total should not be more than £5.1m
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The average number of employees should not be more than 50
It's important to note, however, that even if your company meets the criteria outlined above, there may still be cases when a statutory audit is required, for example if a shareholder, lender or grant provider requests one.
There are other exceptions to when audit exemption applies. For detailed guidance, always check with a qualified accountant with auditing expertise. There are heavy fines for failing to comply with auditing regulations, so it's important to be absolutely sure of your obligations.
Checklist of companies or organisations that require a statutory audit
Certain companies, whatever their size, are always subject to a statutory audit in order to ensure transparency and efficiency. These include:
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Banks or investment firms
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Insurance companies
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Brokerage firms
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Public companies
What is the applicable limit for mandatory statutory audit?
Statutory audit is governed under the Companies Act, 2013, and Companies (Audit and Auditors) Rules, 2014. For Limited Liability Partnerships (LLP), statutory audit is applicable if turnover in any financial year exceeds Rs. 40 Lakhs or its contribution exceeds Rs. 25 Lakhs.For Private Company/ Public Company, statutory audit ismandatory irrespective of Turnover, profits etc. Even if the company is incurring loss even, statutory audit is required.
Who can be appointed as Statutory Auditor?
A statutory auditor of a company is a person appointed to verify the correctness of the accounting records of the company. As per the Companies Act, 2013, only a practicing-chartered accountant (CA) is eligible to be appointed as the statutory auditor in a company. A person shall not be qualified for appointment as statutory auditor of a company unless there is eligibility on the part of the person to act in the capacity of an auditor. Also, a Chartered Accountant firm can be appointed as an auditor of a company. Such an appointment is possible exclusively when the majority of the partners are practising Chartered Accountants in India. The partners should also be qualified for appointment in their respective individual capacities. Further, a limited liability partnership (LLP) also can be appointed as the auditor of a firm in its own name. However, to qualify for appointment, all partners in the LLP should be engaged in full-time practice as CAs.
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