Statutory audit document checklist

What it involves and when it is due

Every company, whatever its turnover, has its financial statements audited under Sections 139 to 148 of the Companies Act, 2013. The first auditor is appointed by the board within 30 days of incorporation (Section 139(6)); after that, an individual auditor is appointed at the AGM for a term of five years. The auditor reports under Section 143 and the Standards on Auditing issued by ICAI.

The Companies (Auditor’s Report) Order, 2020 (CARO 2020) adds matters to the report for most companies. It does not apply to one person companies, small companies, and private companies that are not holding or subsidiary companies of a public company and whose paid-up capital and reserves and borrowings are each within ₹1 crore and revenue within ₹10 crore.

Companies must use accounting software that records an audit trail (edit log) of each change, and the auditor reports whether the feature operated throughout the year. The audited accounts are approved by the board, laid before the AGM and then filed with the Registrar in AOC-4.

Official forms

Common reasons for queries and rejections

• Year-end inventory count not documented, or no count at all.
• Balance confirmations not sent to customers, suppliers and lenders.
• Related-party transactions without the approvals required by Section 188.
• Audit trail (edit log) switched off during part of the year.
• Fixed asset register not reconciled with the ledger.
• Dues to micro and small suppliers not identified for disclosure.
• Minutes of meetings not written up and signed.

Questions

Does a small private company need a statutory audit?

Yes. The Companies Act requires every company to have its financial statements audited, whatever its size. What changes for a small company is the scope of reporting: CARO 2020, for example, does not apply to it.

What does the auditor report about the accounting software?

Whether the software has an audit trail (edit log) feature, whether it operated throughout the year for all relevant transactions, and whether the audit trail was preserved as required.

Who appoints the first auditor of a new company?

The board of directors, within 30 days of incorporation (Section 139(6)). If the board does not, the members appoint the auditor at an extraordinary general meeting within 90 days.

Official sources

• Companies Act, 2013, full text: Sections 139 to 148 (MCA, PDF)
• Companies Act, 2013 on India Code (the Companies (Accounts) Rules, 2014 are listed under the Act)