Statutory Audit: Meaning, Applicability, and Legal Framework (Simplified Guide)

📘 Statutory Audit: Meaning, Applicability, and Legal Framework (Simplified Guide)

🧾 A Statutory Audit is an audit mandated by law to check whether the financial records of an organization give a true and fair view of its financial position

🏢 It is conducted by a qualified Chartered Accountant (CA) who is independent of the organization

🧑‍⚖️ In India, statutory audits are governed by the Companies Act, 2013 and various rules and regulations issued by regulatory authorities

🔍 It applies to all companies—private and public—registered under the Companies Act

📌 Applicability of Statutory Audit

📆 Under the Companies Act, every company (except One Person Company) is mandated to get its accounts audited annually

📊 It applies regardless of turnover, profit or loss, or business activity—even if there is no transaction in the financial year

🧑‍💼 Appointment of Statutory Auditor

📋 As per Section 139 of the Companies Act, 2013
📅 The first auditor must be appointed by the Board of Directors within 30 days of incorporation
👥 If not appointed, then the members (shareholders) must appoint the auditor within 90 days at an Extraordinary General Meeting (EGM)

🗓️ Every company is required to appoint an auditor for a 5-year term, subject to ratification by members at every AGM

📜 Audit Report

🖋️ The auditor gives an audit report that is presented at the Annual General Meeting (AGM) of the company

📈 This report is based on the examination of the company’s books, records, financial statements, and internal control systems

📌 The audit report reflects whether the financial statements give a true and fair view in compliance with the accounting and legal standards

⚖️ Penalty for Non-Compliance

🚫 If a company fails to appoint an auditor or does not comply with statutory audit provisions, it may be liable for penalties
💰 The company may face a fine ranging from ₹25,000 to ₹5 lakh
🚔 Officers in default can also be punished with fine or imprisonment or both, depending on the severity of the default

💼 Practical Tip from My Desk

🔍 In my years of CA practice, I’ve seen businesses underestimate the importance of statutory audits until a notice lands on their desk
💡 An audit isn’t just about ticking compliance boxes—it’s about discovering red flags, improving governance, and building financial trust
✅ My advice: Don’t just “get it done”—use it to improve your financial health

❓ FAQs on Statutory Audit

❓ Is statutory audit applicable to all companies?
👉 Yes, every company other than One Person Company needs to get a statutory audit done, irrespective of turnover

❓ Is statutory audit different from tax audit?
👉 Yes. Statutory audit is as per Companies Act and applies to companies, while tax audit is as per Income Tax Act and applies based on turnover

❓ Who can be appointed as a statutory auditor?
👉 Only a practicing Chartered Accountant (CA) or a CA firm

❓ What is the time limit for auditor appointment?
👉 First auditor: within 30 days by board, else within 90 days by members at EGM

❓ What’s the penalty for non-compliance?
👉 Fine from ₹25,000 to ₹5,00,000 for the company, and officers may face jail time in serious cases

🧭 Let’s make compliance easy and valuable
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