Statutory Audit in Raipur

Who must have a statutory audit

Every company, without exception based on size, turnover or activity. A private limited company incorporated this year with no revenue at all still requires an audit for that year, and the audited accounts still have to be filed. This surprises founders regularly, particularly those who have incorporated a company in advance of starting to trade.

Only a practising Chartered Accountant or a firm of Chartered Accountants holding a certificate of practice can conduct it. The Companies Act also disqualifies certain persons from appointment — an officer or employee of the company, and others in specified relationships with it — so the appointment has to be tested against those provisions rather than assumed.

LLPs are treated differently. An audit under the LLP Act is required only where turnover exceeds ₹40 lakh or partners' contribution exceeds ₹25 lakh in the year. Below both, no statutory audit is required, though books must still be maintained and the annual filings made. The LLP Registration page deals with this in full.

What the audit covers

The auditor examines the financial statements — balance sheet, profit and loss account, cash flow statement where applicable, and the notes — and reports whether they give a true and fair view of the company's affairs. That much is familiar. Four elements of the reporting deserve particular mention because they are where audits now take the most time.

The additional reporting order. Most companies' auditors must report on a substantial list of specific matters — title deeds of immovable property, physical verification of inventory, loans and advances, statutory dues, defaults to lenders, related party transactions, whistle-blower complaints, going concern indicators, and more. The reporting is clause by clause and each clause requires evidence rather than an assertion. The regulator has taken enforcement action where this reporting was found to be superficial, and that posture has hardened.

Certain companies are outside this reporting altogether — one person companies, small companies as defined by the Act, banking and insurance companies, companies registered for charitable purposes, and private companies meeting a separate set of tests on capital, borrowing and revenue. The exemption tests must be verified with actual figures for the year in question, not carried forward from last year's file.

Internal financial controls. For companies above the prescribed thresholds, the auditor must report on the adequacy and operating effectiveness of internal financial controls over financial reporting. This is a distinct exercise from verifying transactions, and it requires the company to have documented its controls — which many smaller companies have not.

The audit trail in the accounting software. Since April 2023, a company's accounting software must have an audit trail, or edit log, feature that is enabled and functioning, and the auditor is required to report on whether it is. In practice this catches a large number of companies using older software, or using software where the feature exists but was switched off. It cannot be remedied retrospectively — an edit log begins when it is enabled — so a company discovering the problem at audit has a reporting consequence it cannot avoid for that year. We raise this at the start of the year rather than at the audit.

Accounting standards. Whether the applicable framework has been complied with, which depends on the class of company.

The annual cycle

In practice the September meeting date, working backwards, means the audit needs to be substantially complete by early September — and where a tax audit also applies, its own report falls due at around the same time. Companies that begin in August are compressing two exercises into the same weeks.

• Appointment of the auditor. The first auditor is appointed by the Board within thirty days of incorporation. Thereafter appointment is by the members, ordinarily for a term of years, and is intimated to the Registrar.
• The audit. Conducted on the accounts for the financial year, and concluded with a signed report carrying the unique document identification number required by the Institute.
• Adoption. The audited accounts are laid before the members at the annual general meeting, which for most companies is to be held by the end of September.
• Filing. The audited financial statements are filed with the Registrar within thirty days of the meeting, and the annual return follows.

Where statutory audits go wrong

• Records that are not audit-ready. Bank reconciliations not done, balances unconfirmed, stock not physically verified, statutory dues unreconciled. None of this is difficult, but doing it in September for the whole year is expensive and produces a worse audit than doing it monthly.
• The audit trail not enabled. As above, and not curable after the event.
• Related party transactions not identified. Group companies, family concerns, directors' own businesses. These require identification, approval where the Act requires it, and disclosure. In closely held Raipur businesses with several entities under common control, this is the single most common area of difficulty.
• Loans and advances between group entities. Which the Act restricts, and on which the auditor must report. Informal movements of funds between related concerns — common in family businesses — can create genuine problems.
• Stock valuation in trading and manufacturing companies. Where the method used is not consistently applied, or not supported by records. For steel, cement and commodity businesses holding substantial stock, this is often the largest figure in the accounts and the one most closely examined.
• No documented internal controls, where the company is above the threshold for controls reporting.

Sectors we audit in Raipur

Manufacturing units in the steel and iron sector — sponge iron, rolling and re-rolling, fabrication — where consumption, yield and stock valuation dominate the audit. Rice mills, where the same is true and where custom milling for government procurement raises its own questions. Trading and distribution companies across cement, hardware, commodities and pharmaceuticals. Works contractors, where revenue recognition on incomplete contracts, retention money and work in progress are the central issues. Transport and logistics companies. Companies formed to hold or develop real estate, where the RERA audit of project accounts also arises and the two exercises need to be reconciled.

Scope of our work

We establish which reporting requirements apply, tested against the year's actual figures; plan the audit and agree a timetable that allows the annual general meeting date to be met; conduct the audit in accordance with the applicable standards; verify the audit trail position in the accounting software and raise it early enough to be acted on; examine related party transactions and inter-corporate loans against the requirements of the Act; report on internal financial controls where applicable; issue the audit report with the required identification number; and support the subsequent filings with the Registrar.

Where a tax audit also applies, we conduct both together and reconcile between them, rather than running two exercises over the same records.