Statutory Audit under the Companies Act, 2013 – A Complete Guide for Companies
A statutory audit is one of the most important compliance requirements under the Companies Act, 2013. It is a legally mandated examination of a company's financial records conducted by an independent Chartered Accountant to verify whether the financial statements present a true and fair view of the company's financial position. Besides fulfilling legal obligations, a statutory audit enhances financial transparency, strengthens corporate governance and builds confidence among shareholders, investors, lenders, government authorities and other stakeholders.
Unlike certain audits that apply only after crossing prescribed limits, a statutory audit is compulsory for every company registered under the Companies Act, 2013, irrespective of its turnover, capital, profit or size. Whether it is a Private Limited Company, Public Limited Company, One Person Company (OPC) or Small Company, compliance with statutory audit provisions is mandatory.
Legal Framework of Statutory Audit
The provisions relating to statutory audit are primarily contained in Sections 139 to 147 of the Companies Act, 2013.
Section 139 requires every company to appoint a statutory auditor. Normally, the auditor is appointed at the first Annual General Meeting (AGM) and holds office until the conclusion of the sixth AGM, subject to the provisions of the Act.
Section 143 lays down the powers, duties and responsibilities of the statutory auditor. During the audit, the auditor examines the company's books of account, accounting records and financial statements, including the Balance Sheet, Statement of Profit and Loss, Cash Flow Statement and other relevant documents. After completing the examination, the auditor issues an independent audit report stating whether the financial statements provide a true and fair view of the affairs of the company.
Further, Section 143(10) mandates that every statutory audit must be conducted in accordance with the auditing standards notified by the Central Government, thereby ensuring uniformity and professional quality in the audit process.
Is Statutory Audit Mandatory for Every Company?
Yes. One of the most significant features of the Companies Act, 2013 is that statutory audit is compulsory for all companies, irrespective of their turnover or business activity.
Even companies that have not commenced substantial business operations or have reported losses during the financial year are generally required to comply with statutory audit provisions. The objective is to maintain transparency, accountability and reliability in financial reporting across the corporate sector.
Appointment of Statutory Auditor
The appointment of a statutory auditor follows a structured legal process.
The first auditor must be appointed by the Board of Directors within 30 days from the date of incorporation of the company. If the Board fails to appoint the auditor within the prescribed period, the shareholders are required to appoint the first auditor within 90 days through an Extraordinary General Meeting (EGM), as provided under Section 139(6).
Before accepting the appointment, the proposed auditor must furnish written consent and confirm that he or she satisfies all eligibility requirements prescribed under the Companies Act, 2013.
After the appointment of the first auditor, the shareholders appoint the subsequent auditor at the first Annual General Meeting for the prescribed tenure in accordance with Section 139(1). Upon completion of the tenure, a fresh appointment or reappointment is made in accordance with the provisions of the Act.
Further, every appointment of an auditor should be intimated to the Registrar of Companies (ROC) by filing Form ADT-1 within 15 days of the relevant Board Meeting or Annual General Meeting, as applicable.
Due Date for Statutory Audit
A statutory audit is conducted once every financial year.
For companies following the normal financial year ending on 31st March, the audit should be completed before the statutory due dates so that the audited financial statements can be placed before the shareholders in the Annual General Meeting.
Timely completion of the audit is also necessary because the company is required to file its audited financial statements with the Registrar of Companies through Form AOC-4 within 30 days from the conclusion of the AGM. Delays in completing the audit may therefore affect multiple statutory compliances under the Companies Act.
Consequences of Non-Compliance
Failure to conduct a statutory audit may attract serious legal consequences under Section 147 of the Companies Act, 2013.
A company that fails to comply with the statutory audit requirements may be liable to a penalty ranging from ₹25,000 to ₹5,00,000. Likewise, an auditor who fails to discharge his statutory responsibilities may also be liable to a penalty ranging from ₹25,000 to ₹5,00,000.
Where the default continues, additional penalties may also be imposed on a daily basis, generally ranging from ₹500 to ₹5,000 per day, until the default is rectified. Such penal provisions highlight the importance of timely compliance with statutory audit requirements.
Other Audits may applicable for Companies
Apart from the statutory audit, companies may also be subject to other specialized audits depending upon the nature of their business and applicable legal provisions. These include Internal Audit, Cost Audit, Secretarial Audit, Compliance Audit, Operational Audit and Tax Audit under the Income-tax Act, wherever applicable.
Each of these audits serves a distinct purpose and collectively contributes towards better financial management, stronger internal controls and improved regulatory compliance.