Understanding the Function of Statutory Audit
As the name implies, statutory audit is mandatory for all enterprises registered under the Companies Act or as a Private or Public Limited company to audit the books for every year. It is not a conditional audit and the only thing that determines the structure of this audit is the nature of the business entity. If you are registered as a company in the book of records, you have to step in to this procedure with the assistance of a Chartered Accountant firm. The statutory audit considers whether the annual accounts of the company provide you with a fair and unbiased view and comply with the legal requirements.
- Understanding the procedure
The procedure of statutory audit is executed by the best audit firms in India with services exterior to the organization for which the audit is done. They are usually appointed by the shareholder of the company and are responsible for overseeing multiple financial accounts of the business and analyze the risks associated with the financial domains of the business. The primary responsibility of the statutory auditors is to execute the procedure of audit and provide suggestions whether the financial records analyzed provide a fair reflection of the financial position of the company. They also deal with the assessment and evaluation of the internal controls to manage the potential risks affecting the financial position of the company.
- Understanding the operation
The auditing and assurance services thoroughly check whether the internal practices of the organization tally with the regulatory criteria and the guidelines of the industry. Usually, the auditors extract information from the company through the checklists, surveys, and formal notifications to various segments and the employees of different departments. For instance, the request letter or the formal notifications ask the employees of specific departments to provide the necessary information to facilitate the procedure of audit. Similarly, the risk manager can be asked to provide the methods used for calculating the market risks.
- Knowledge of the controls
The auditor can also learn about the operating controls of the business by asking specific questions to the employees. Apart from this, the suit specialists can go through the industry publications of the previous years and the audit reports. Reading the papers of the financial services industry also facilitate the auditors to review the operation of the insurance company.
- Testing the controls
While conducting statutory audit in India, the auditors also find out whether the controls and the corporate procedures and the mechanism used for prevention of scams comply with standards and practices devised by the authorities. The auditor also needs to ensure whether the controls perform uniformly and understood properly by all the employees involved in the process of the statutory audit.
- Reviewing the account details
The Chartered Accountant firm appointed for carrying out the procedure of audit also keeps an eye on the account and the balances and analyze the financial statements to ensure whether such records are completed and accurate. Some of the financial records they use include the balance sheet, the statement including the cash flow, profit and loss along with the equity of the shareholders.
- Discrepancies in financial statement
The role of the auditor firm executing the task of statutory audit is to check the account balance clearly to track whether the financial statements produced by the company includes major discrepancies. The account balance should be free from errors, but comply with the statutory principles and the practices prevailing in the industry. The insurance agencies and banks require statutory audits mandatorily and provide the audited financial statements regularly. The procedures may vary and provide an in-depth study of the internal controls and the operating environment.