Overview: 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!
Table of ContentsA company’s audit serves as an indispensable mechanism for examining its activities, compliance, and financial records. There are several types of audits that can be conducted for a variety of purposes. For instance, we have the tax audit to verify the taxable income and claimed deductions; a cost audit to examine the costs and expenses in business operations; and most importantly, statutory audit to comply with the requirements of Companies Act. While tax audits and cost audits are conducted by professionals, statutory audits under Companies Act – 2013 are conducted by an auditor appointed by the company itself. Let’s dig deeper into the related processes and requirements.
Statutory Audit under Companies Act 2013 is mandatory for all types of companies in India. Section 139 of the Act prescribes an auditor’s appointment for this purpose. According to this section, every company is required to appoint an auditor at its first annual general meeting (AGM), who shall hold office from the conclusion of that meeting till the conclusion of the sixth AGM. However, the entire term is subject to ratification in every AGM conducted during subsequent years.
In-DepthAdditionally, subsection (2) of Section 139 specifies the eligibility criteria for auditors. An individual or a firm, including a limited liability partnership (LLP), can be appointed as an auditor, provided they are qualified and eligible. We have discussed the eligibility criterias further in this blog. Section 143 of the Companies Act delineates the powers and duties of the appointed auditors. This includes the auditor’s responsibility to prepare a detailed report on the financial status of the company.
Such a report requires in-depth examination of the company’s financial statements, which includes the balance sheet, profit and loss account, and cash flow statement. The audit report must state whether the financial statements give a true and fair view of the company’s state of affairs. Lastly, the Companies Act emphasizes the need for compliance with auditing standards, as mentioned in Section 143(10). This section requires auditors to follow the auditing standards notified by the Central Government.
Statutory audit under Companies Act 2013 is compulsory for every company, irrespective of its turnover. Even if a company is smaller in size and falls within the definition of a one person or small company, it is still required to undergo a statutory audit. The Act mandates this process to ensure a comprehensive examination of the company’s financial statements, contributing to financial transparency, credibility, and accountability across the corporate landscape. The statutory audit requirement underscores the significance of accurate and reliable financial reporting, reinforcing the regulatory framework’s commitment to upholding corporate governance standards for businesses of all sizes.
No hidden Charges Affordable/ Reasonable Fee Comprehensive Estimate/ Quotes Transparent PricingStatutory audit under Companies Act 2013 is conducted annually and should be completed within six months from the end of the financial year. This means that if a company’s financial year concludes on March 31st, the statutory audit must be finished by September 30th of the same year. Wondering Why? Let’s understand! Meeting the statutory audit deadline is intricately connected to other crucial timelines within the regulatory framework.
Firstly, the completion of the audit is pivotal for the timely convening of the Annual General Meeting (AGM). As per the Companies Act, the AGM should be held within six months from the end of the financial year. Therefore, concluding the statutory audit by the specified deadline ensures that the AGM can be convened promptly, allowing shareholders to review and approve the audited financial statements.
Additionally, the due date for statutory audit aligns with the deadline for filing the audited financial statements to the Registrar of Companies (ROC) through the AOC-4 form. The AOC-4 form is required to be filed within 30 days from the conclusion of the AGM. Meeting the statutory audit deadline becomes pivotal in this context, ensuring that the audited financial statements are ready for submission, promoting regulatory compliance, and avoiding penalties associated with delayed filing.
Ensuring a methodical and complaint procedure for the appointment of auditor is pivotal for a successful statutory audit under Companies Act – 2013. The procedure encompasses the initial appointment of the first auditor, followed by appointments of subsequent auditors at the end of every year. It’s completed when an intimation is filed to the ROC in form ADT-1. Let’s briefly understand what the process of appointment is.
Ensuring a meticulous and compliant process for the appointment of the first auditor is imperative within the initial 30 days of incorporation. The Board of Directors convene a meeting to pass a resolution for the purpose. As a result, either an individual or a CA firm qualified to become an auditor gets appointed. In the event the Board fails to appoint the first auditors within the stipulated 30 days, shareholders can step in by appointing auditors through an extraordinary general meeting within 90 days, in accordance with Section 139(6).
Before the appointment, the chosen auditor provides formal consent, signifying their willingness to undertake the responsibilities. This is in addition to declaring their eligibility for the appointment itself. The first auditor holds office until the first Annual General Meeting’s conclusion. At the second AGM, shareholders have the opportunity to ratify the appointment, deciding whether to retain the auditor for subsequent years or not.
Following the first auditor appointment, a systematic process unfolds the subsequent auditor appointments. During the first AGM of the company post-incorporation, shareholders pass a resolution to appoint subsequent auditors for a five-year term, adhering to the guidelines mentioned in Section 139(1) of the Companies Act. As this term concludes, a fresh auditor is appointed in subsequent AGMs to ensure compliance with the regulatory standards. This structured approach to auditor appointments not only contributes to efficient corporate governance but also emphasizes transparency and accountability in financial reporting.
