Comprehensive Guide to different Forms of Audit under Companies Act 2013

Introduction:

The Companies Act, 2013 is the principal legislation governing the incorporation and management of companies in India. The Act has introduced various provisions related to audit that are aimed at ensuring transparency, accountability, and corporate governance in companies. Under the Act, there are different forms of audit that companies are required to undertake, depending on their size, nature of operations, and other factors. In this article, we’ll provide a comprehensive guide to the various forms of audit under the Companies Act 2013 and the compliance requirements for companies.

Statutory Audit

Definition of Statutory Audit and Purpose

A statutory audit is an external audit of a company’s financial statements, conducted by a qualified auditor. The purpose of a statutory audit is to provide assurance to the stakeholders of a company that its financial statements are accurate and reliable.

Statutory Audit Applicability and Threshold Limit Under the Companies Act 2013

Every company is required to appoint a statutory auditor to audit its financial statements. However, the threshold limit for appointing a statutory auditor varies based on the type and size of the company.

Appointment of Auditors for Statutory Audit

A company is required to appoint a qualified auditor as its statutory auditor. The auditor must be independent, and not have any direct or indirect financial interest in the company. The appointment of the auditor must be approved by the shareholders of the company.

Statutory Audit Report and Compliance

The statutory auditor is required to prepare an audit report that provides an opinion on the accuracy and reliability of the company’s financial statements. The audit report must be submitted to the shareholders of the company, along with the financial statements. Companies are required to comply with the audit report’s findings and rectify any errors or discrepancies that are identified.

Internal Audit

Internal Audit Definition and Purpose

Internal audit is a process by which a company’s internal controls, accounting procedures, and financial statements are reviewed by an independent auditor. The purpose of internal audit is to identify and evaluate the company’s internal control systems and make recommendations for improvements.

Internal Audit Applicability and Threshold Limit Under the Companies Act 2013

Every company that meets the threshold limit of paid-up share capital of Rs. 50 crore or more, or turnover of Rs. 250 crore or more, is required to have an internal audit system.

Appointment of Internal Auditors

A company can either appoint an independent internal auditor or set up an internal audit department. The internal auditor or department must be independent of the company’s management and must report directly to the audit committee.

Internal Audit Report and Compliance

The internal auditor is required to prepare an audit report that provides an opinion on the adequacy and effectiveness of the company’s internal control systems. The audit report must be submitted to the audit committee of the company, along with recommendations for improvements. Companies are required to comply with the audit report’s findings and implement the recommendations made by the internal auditor.

Cost Audit

Cost Audit Definition and Purpose

Cost audit is a process by which a company’s cost accounting records and cost statements are audited by a qualified cost accountant. The purpose of cost audit is to ensure that the company’s cost accounting records and statements are accurate and in compliance with the Cost Accounting Standards (CAS) issued by the Institute of Cost Accountants of India (ICAI).

Cost Audit Applicability and Threshold Limit

Under the Companies Act 2013, every company engaged in the production, processing, manufacturing, or mining of goods or services is required to conduct a cost audit. The threshold limit for conducting a cost audit varies based on the following

• In respect of companies in the Regulated sectors as contained in Table A of Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 shall get its cost records audited if the
  1. Overall annual turnover of the company from all its products and services during the immediately preceding financial year is 50 crore or more and
  2. Aggregate turnover of the individual products or service for which cost records are required to be maintained under Rule 3 is 25 crore or more.
• In respect of companies in the Non-regulated sector as contained in Table B of Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 shall get its cost records audited if the
  1. Overall annual turnover of the company from all its products and services during the immediately preceding financial year is 100 crore or more and
  2. Aggregate turnover of the individual products or service or services for which cost records are required to be maintained under Rule 3 is 35 crore or more.