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An audit is an independent evaluation of the financial information of any entity, regardless of whether it is profit-oriented or not, and irrespective of its size or legal structure. Audits can be mandated by law, recommended for internal purposes, or used for decision-making. In India, various types of audits are required, primarily aimed at reviewing the accounting records and information to express an opinion on them. The audit process ensures that the books of accounts are maintained according to legal requirements. Given the significance of auditing in both corporate and public sectors, businesses engage auditors who assess and recognize the propositions before them, gather evidence, evaluate it, and form an opinion based on their judgment, which is communicated through their audit report.
Every company registered under the Companies Act is required to have its books of accounts audited by a Chartered Accountant in practice, as mandated by Section 129 of the Companies Act, 2013. Each company must prepare financial statements for the period ending March 31st each year, regardless of any specific criteria. These financial statements must provide a true and fair view of the company's financial position and adhere to the accounting standards established by the Central Government under Section 133 of the Companies Act. The financial statements must be prepared in the prescribed form and format applicable to the specific type of company; for private limited companies, Schedule III is the appropriate format.
The Board of Directors of the company is responsible for maintaining the books of account and preparing the financial statements. The auditor's role is to provide an opinion on whether the financial statements present a true and fair view and comply with Generally Accepted Accounting Principles (GAAP) and standards in India.
Every company registered under the Companies Act is required to have its books of accounts audited by a Chartered Accountant in practice, as mandated by Section 129 of the Companies Act, 2013. Each company must prepare financial statements for the period ending March 31st each year, regardless of any specific criteria. These financial statements must provide a true and fair view of the company's financial position and adhere to the accounting standards established by the Central Government under Section 133 of the Companies Act. The financial statements must be prepared in the prescribed form and format applicable to the specific type of company; for private limited companies, Schedule III is the appropriate format.
A stock audit, also known as an inventory audit or fixed assets audit, refers to the physical verification of a company or institution's inventory or assets. The approach to a stock audit can vary depending on its specific purpose, as different types of stock audits require tailored methodologies.
Every business institution should conduct a stock audit at least once a year and a fixed assets audit every two years, depending on the nature of the entity. This ensures that the physical stock or assets align with the records in the books of account. A stock audit helps identify and correct any discrepancies between the actual physical stock and the recorded inventory or fixed assets.
Internal audits assess a company’s internal controls, including corporate governance and accounting processes. They ensure compliance with laws and regulations, while maintaining accurate and timely financial reporting and data collection. Additionally, internal audits equip management with the tools to improve operational efficiency by identifying issues and correcting deficiencies before they are detected in an external audit.
A statutory audit is mandated by various statutes such as the Reserve Bank of India (RBI), Income Tax Act, and the Companies Act, among others. Chartered Accountants are required to conduct several audits based on the statutory requirements.
Statutory audits for banks are compulsory, with auditors appointed by the RBI in collaboration with ICAI. Each year, following the end of the financial year, a thorough audit is conducted in every branch of the bank.
Statutory auditors must ensure their audit reports comply with Revised SA 700 (Forming an Opinion and Reporting on Financial Statements), SA 705 (Modifications to the Opinion in the Independent Auditor’s Report), and SA 706 (Emphasis of Matter and Other Matter Paragraphs in the Independent Auditor’s Report).
In recent times, statutory auditors are provided with a specific timeframe to complete the audits of assigned branches. Upon appointment, auditors are expected to immediately accept the assignment and formally communicate with branch management to gather the necessary information for their audit.
Auditors are also required to quantify advances, deposits, interest income, and interest expenses in their reports.
Key elements to review in a statutory audit of banks include:
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