An audit is a review of business owners, organisations, regulatory entities, or Individual's records, including financial or other data. A statutory audit is a legally mandated inspection of a company's or government's financial accounts and records. A statutory audit looks at data, including bank balances, bookkeeping records, and financial transactions, to see if an organisation's financial situation is presented fairly and accurately. Especia will be your one point solution for every question.
A legal necessity for the assessment of a company's financial accounts is a statutory audit Checklist. It maintains track of financial statements to see if they depict the position of the organisation accurately and fairly.
To conduct a statutory audit adequately, Chartered Accountants and Certified Public Accountants must have extensive knowledge and experience in the field.
As a Statutory Auditor, who can be appointed?
A chartered accountant, a chartered accountant firm, or an LLP with the majority of partners practising in India can appoint a statutory audit checklist for a company.
The following is the applicable limit for a mandatory statutory audit:
The Companies Act of 2013 is in charge of statutory auditing. If your yearly revenue reaches Rs.40 lakhs and your investment surpasses Rs.25 lakhs, you should form a Limited Liability Partnership (LLP). A statutory audit checklist is necessary for both private and public firms, regardless of profit or turnover. Statutory compliance is necessary even if the business is losing money.
Statutory Audit Checklist for Purchase Finance Companies
- For granting Hire Purchase Finance, NBFCs must have a sufficient appraisal mechanism. The appraisal system is necessary for obtaining information about the hirer's creditworthiness and reliability and his or her expertise and assets.
- According to the auditor, payment for any asset should be paid directly to the supplier, dealer, or vendor. Original invoices must be issued in the name of the NBFC alone.
- When a high-value item, such as machinery or other equipment, is rented, the auditor must physically verify the entire transaction if the auditor does not believe it is trustworthy.
- The Statutory Auditor will verify whether the assets delivered on hire purchase are insured or not.
Finance provided by a leasing firm Checklist for a Company's Statutory Audit
- The NBFC must assess whether it has a proper appraisal system for offering equipment leasing loans.
- An Auditor must check whether the NBFC has suitable monitoring methods and whether the assets are properly insured. The lessee must also maintain the leased assets, which the auditor must verify.
- The lease agreement between the lessee and the company's Statutory Auditor in reference to the equipment leased must be verified.
Investigate the Environment of Control
Auditing Required by Law Depending on the organisation, requirements will differ. External factors affecting a company's competitive position and top leadership's strategic posture are reflected in its control environment. Regulative guidelines, rival actions, and domestic and worldwide economic trends are examples of these components. Industry, firm, and region all have different regulatory requirements.
A brokerage firm in New York, for example, might be required to follow the rules of the New York Stock Exchange. On the other hand, a Colorado-based construction firm may be required to follow OSHA regulations. Internal elements, including senior management's ethical principles and traits, human resources policies, and corporate purpose and vision statements, all have an impact on a company's control environment.
Internal Controls are being tested.
A statutory auditor examines a bank's or brokerage firm's internal controls to ensure that they are sufficient and effective. He also examines such controls to see if they adhere to the regulating agency's statutory criteria. A statutory auditor, for example, may evaluate senior management's orders to ensure that they comply with the National Association of Securities Dealers Automated Quotations (NASDAQ) guidelines while examining the controls in market transaction recording processes.
A control is a set of instructions put in place by senior management to prevent operating losses caused by theft, error, technology failure, or staff inattention. Control also aids a corporation in avoiding financial loss as a result of negative statutory actions such as penalties and litigation.
Balance Sheet Audit
It's a test of a balance sheet's accuracy. As auditors execute this review based on supporting documents, it involves a number of checks as per the auditor's balance sheet audit checklist. The following items will be checked during the balance sheet audit:
- There is a difference between share capital and share application money. Check to see if any share capital changes have occurred and, if so, whether a lawful resolution authorised the adjustments.
- Secured loans must be accompanied by the most recent bank statements, bank reconciliation statements, and sanctioned letters verifying the loan's interest rate.
- Unsecured loans, such as loan acceptance statements, interest rate confirmation letters, and ledger copies from the loan provider's books
- Current liabilities and provisions include confirmation copies of the closing balances, a full breakdown of the various creditors, ledger copies of the party's book, extensive comments on the creditors written off, a list of parties to be written off, and specific provisions in the books.
- Dues and returns, such as copies of TDS, TCS, VAT, Sales Tax, Excise Duty, Provident Fund, Professional Tax, and other challans.
- Fixed assets include copies of invoices showing any asset additions, depreciation books, and a list of assets not yet accounted for in the accounts.
- Inventories include statements detailing the value of closing stocks, reconciliation statements, excise records, daily production and sales quantities, and raw material input and output ratios.
Every Financial Year, an NBFC must undergo an audit to ensure that they have followed all of the rules and regulations in order to avoid any penalties. Internal auditing is optional, whereas statutory auditing is required. To ensure that the accounts are correct, dependable, and legitimate, the NBFC must follow the checklist set by the statutory audit.
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