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Roles and Responsibilities of Statutory Auditor

The companies act 2013 has clearly defined the roles and responsibilities of statutory Auditor, the responsibilities of the auditor are a focus in companies act 2013 as compared to companies act 1956. In this article, we will discuss the Roles and Responsibilities of Statutory Auditor in India.

What is a Statutory Audit?

Statutory Audit is an audit mandated by a Statute or Law. The basic motive of Statutory Audit is a true and fair view of the book of accounts of a Business is presented to the Regulators and the Public. The statutory Audit is classified into types, Company audits, and tax audits.

Who shall undergo for Statutory Audit?

• The Companies Act, 2013 mandates every Company to undergo for statutory audit irrespective of its sales turnover or nature of business or capital must have its book of accounts audited each financial year.

• Limited Liability Partnership (LLP) shall get its account audited if it crosses the limit of turnover Rs. 40 Lakhs annually or has capital contribution more than 25 Lakhs.

• Proprietorships and Partnership Firms shall undergo for tax audit if crosses the certain threshold of sales.

Who are eligible to appoint as statutory Auditor?

• Every Practicing Chartered Accountant is eligible to be appointed as statutory auditor.
• The chartered accountant firm or LLP can be appointed as an auditor of a company when a majority of the partners are practicing Chartered Accountants in India and are qualified for appointment.

Who is disqualified to act as an Auditor?

• Any person who is an officer or an employee of the company;
• Any Body corporate other than a limited liability partnership (LLP);
• Any person whose relative is a director of the company or who is a position of key managerial personnel in the company.
• Any person convicted by the court of any offense involving fraud and a tenure of ten years has not elapsed from the date of his conviction.
• Any person who is a partner, or who is in the employment, of an officer or employee of the company.
• Any person or a firm who, whether directly or indirectly, has a business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature.
• The person who is in full-time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, more than twenty companies.

What are the powers of a statutory auditor?

Right to access books of accounts:

The Auditor has right to inspect the Books of Accounts, vouchers of the Company whether kept at the Head Office or elsewhere. The books of accounts include all books which are usually financial bools or statutory books or statistical books or stock books or costing record etc. The right to access books and records maintained at a registered office as well as at any branches of the Company.

Right to obtain information and explanation from Officers:

The auditor can obtain information and explanation from the officers of the Company whenever he may think necessary. The auditor would not be able to obtain details from the directors or any other company which he cannot be able to find from observing the books if such power has not given power. The auditor shall mention in a report if he doesn’t receive any adequate information from the company.

Right to attend General Meeting:

The Auditors have right to attend all the General Meeting of the Company whether in meeting the accounts audited by them are going to discuss or not. The Auditor shall also be entitled to receive all the notices and to be heard at any general meetings. The auditor shall always attend the meeting to bring to the notice of the shareholders any matter which has come to his knowledge during an audit.

Duties of Auditor:

• The auditor has to inquire whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are not prejudicial to the interests of the company or its members.
• The auditor shall enquire the entries made in books are not prejudicial.
• He shall inquire about the company, whether it is an investment company, and if not, whether the assets of the company, consisting of shares and debentures.
• He should also check whether loans and advances made by the company have been shown as deposits.
• He should verify whether the personal expenses have been charged to revenue account.
• In case, if in the books of accounts, it has been stated that if any shares have been allotted for cash, he has to verify whether the cash has actually been received in respect of such allotment.
  

The Responsibility of Auditor:

The following are the responsibility of Auditor:

• All the functions of the unit shall be audited and shall develop a familiarity with the organization.
• An auditor shall pre-plan the audit in accordance with the scope and complexity of the area which is under review.
• An auditor shall perform the assigned tasks in an independent and self-directed fashion.
• The task shall be completed in timely, accurate and well-documented manner.
• An auditor shall conduct himself in a professional manner at all times; also shall avoid those situations which can lead to criticism by the area being audited or by the general public.
• Friendly and cooperative behavior with the audited area’s staff.
• The auditor shall request files which may need.
• An auditor shall return all files/record to the person or area from where it was obtained.
• The auditor shall maintain records at all time in the same or better condition in which they were found.
• The auditor shall retain all the records in premises. They shall never remove any vital documents from the premises.
• The auditor shall accept all the responsibility and accountability for the audit work performed on assigned projects.
• The auditor shall manage the audit in relation to time and resource budgets.
• The auditor shall ensure all Worksheets issued are properly constructed, supported, and communicated.
• The auditor shall ensure that the audit or review is conducted with the least amount of disruption to the audited area as is possible.
• The auditor shall finalize the audit file(s), and ensure that all supporting documentation is properly retained.

Restricted Services for statutory Auditor:

The Statutory Auditor shall not take any assignment of the Company while servicing the Statutory Audit. The statutory Auditor is entitled to take those assignments which are approved by the Board of Directors in its Meeting. The following are the services statutory auditor cannot take of the company or its holding or subsidiary Company.

• Accounting or bookkeeping services
• Internal audit of the Company
• Designing and implementation of any financial information system of the Company.
• The Actuarial service.
• Investment advisory services of the Company.
• Investment banking services of the Company.
• Any financial outsourced services of the Company.
• Any Management services.

Also Read: Auditing of Private Limited Company in India