Checklist Of Statutory Audit

Last Updated On: Nov. 9, 2020, 7:49 p.m.
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CHECKLIST FOR STATUTORY AUDIT

Introduction:

A Statutory Audit is an audit which is legally required to be reviewed to know the accuracy of a company financial statements and records. A statutory Audit helps in determination whether an oraganization furnishes a fair and accurate representation of its financial position which can be done by examining the various information such as bank balances

In other words, an audit is an examination of records which is held by an organisation, business, government entity, or individual, which also involves the analysis of Financial Records. The purpose of this audit is to often determine if funds of the company are properly handled and all the records and fillings are accurate.

 

Applicable Limit for Mandatory Statutory Audit:

 As per Companies Act,2013 Statutory Audit is governed

Limited Liability Partnership(LLP)- It is applicable if turnover exceeds Rs.40 lakhs or its contribution exceeds Rs.25 Lakhs in any financial year.

Private Company/Public Company- Statutory Audit is mandatory irrespective of Profits, Turnover. Even during the company is suffering from loss statutory is compulsory.

 

Appointment of Statutory Audit:

A Chartered Accountant Firm with majority partners or LLP or A practicing Chartered Accountant can be appointed as a statutory auditor of a company.

 

While conducting Statutory Audit following areas has to be taken to into consideration:

1. Audit of Balance Sheet

It is an evaluation of the accuracy of information found in a company’s balance sheet. It involves a number of checks, as per the auditor’s balance sheet audit checklist, as auditors conduct this evaluation based on supporting documents. Balance Sheet audit will involve verification of:

  • Share capital and share application money. Verify whether the share capital changes are there and whether the changes are authorized under proper resolution.
  • Secured loans including latest bank statements, bank reconciliation statements and sanctioned letters confirming the rate of interest on the loan
  • Unsecured loans including statements showing acceptance of loan, rate of interest confirmation letter, ledger copies from the books of the loan provider
  • Current liabilities and provisions including confirmation copies of the closing balances, detailed break-up of the sundry creditors, ledger copies of party’s book, detailed notes on the creditors written-off, list of parties to be written-off, detailed provisions standing in the books
  • Dues and returns including copies of TDS paid, TCS paid, VAT paid, Sales Tax paid, excise duty paid, provident fund payable, professional tax paid etc., copies of challans.
  • Fixed assets including copies of invoices showing any addition to the Assets, books showing depreciation working, list of assets not yet accounted in the books
  • Inventories including statements showing valuation of closing stocks, statement of reconciliation and excise records, details of quantity of production and sales on daily basis, input and output ratio of the raw material
  • Investments including list of investment, date of investment and amount of investment made in a year, nature of investment, investments sold in the year.
  • Current assets including list of sundry debtors, cash and bank balance details, details of deposits etc., profit and loss account details etc.

 

2. Audit of Profit & Loss Account

  • Compare year-over-year numbers as well as industry benchmarking
  • Look at the margins such as gross profit margin, EBITDA margin, operating margin, net profit margin
  • Conduct Trend analysis to find out whether the metrics improving or deteriorating
  • Look at the Rates of return such as return on equity (ROE), return on assets (ROA)
  • Check the individual breakups of sales and purchases.
  • In the case of direct expenses and indirect expenses concentrate on the agreements like rent, fees, royalty, lease rent, advertisement, other expenses.
  • In the case of preliminary expenses, check the treatment showing whether it is capitalized within five years
  • Minutes of the meeting should be verified showing the any resolutions for capitalization of expenses, managerial remuneration, loans, approving donations
  • Any income from investment i.e. interest, dividend should be checked with the bank account.
  • Verify the valuation of closing stock whether closing stock valuation is as per accounting standard-2.

 

3.Internal Controls

A test of controls is considered to be an audit procedure to test the effectiveness of a control used by a client entity for prevention or detection of material misstatements.

Based on the results of this test, auditors may choose to rely upon a client’s system of controls as part of their auditing activities. In case if the test reveals that controls are weak, the auditors will enhance their use of substantive testing, which usually increases the cost of an audit. 

 

4. Researching the Control environment of the organisation:

Every organization has control environment either through regulatory guidelines or initiatives of the competitor or economic trends taking place in the country or at the international level. These elements show the competitive strategy or the stand of the company in the market. Every statutory auditor has to research these elements to know more about the controlled environment of the business.

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