In India, the role and responsibilities of a Statutory Auditor are defined under various laws and regulations, including the Companies Act, 2013, and the rules made thereunder. The primary purpose of a statutory audit is to ensure that the financial statements of an entity give a true and fair view of its financial position and operational results. Statutory Auditors are appointed by the shareholders of the company during the Annual General Meeting (AGM) and their duties are largely focused on reviewing and verifying the financial records and practices of the company. Here are the principal roles and responsibilities of a Statutory Auditor in India:
1. Examination of Financial Statements
The Auditor is responsible for examining the financial statements of the company, including the balance sheet, profit and loss account, and cash flow statement, to ensure they are in accordance with the prescribed accounting standards and reflect the true and fair view of the company’s financial health.
2. Verification of Books of Accounts
Auditors must verify the books of account, ledgers, and vouchers of the company to ascertain their accuracy and authenticity. This involves checking transactions and ensuring they are recorded as per the relevant accounting standards and principles.
3. Compliance with Legal Requirements
Auditors must ensure that the company complies with the legal requirements under the Companies Act and other relevant laws. This includes verifying the adequacy of disclosures in financial statements and compliance with various statutory requirements.
4. Reporting on Internal Financial Controls
The Auditor has to evaluate and report on the internal financial controls system of the company and its operational effectiveness. This is crucial for identifying any weaknesses or discrepancies that might affect the accuracy of financial reporting.
5. Detection and Reporting of Fraud
The Auditor has a duty to detect and report any fraud, errors, or irregularities within the company’s financial operations that are identified during the audit process.
6. Tax Compliance
The Auditor should ensure that the company is compliant with tax laws, including the filing of returns and payment of taxes due. While the primary focus is on financial auditing, the auditor may also highlight significant tax compliance issues.
7. Assessment of Accounting Policies
Evaluating the appropriateness and consistency of accounting policies used by the company and ensuring they are in accordance with the applicable accounting standards.
8. Reporting
After completing the audit, the Auditor is required to prepare and submit an audit report to the shareholders. This report should express an opinion on the financial statements, highlighting any discrepancies, frauds, or non-compliance with the laws and accounting standards.
9. Other Duties
Depending on specific legal requirements or agreements, auditors might also be involved in other duties such as reviewing quarterly financial statements, participating in AGMs, and providing advice on financial reporting and controls.
It’s worth noting that while Statutory Auditors play a critical role in ensuring financial transparency and accountability in businesses, their scope is defined by law, and they operate independently of the company’s management to maintain objectivity and integrity in their audit reports.
