Statutory Audit Checklist | Practical Guide for CAs

Introduction

Every March-end, the same thing happens across CA offices in India. Audit files pile up, juniors are scrambling, and even experienced CAs sometimes wonder — did we miss anything? That feeling is more common than you think.
A statutory audit under the Companies Act, 2013 is not just a box-ticking exercise. It is a legal responsibility. Miss something material, and it doesn't just affect your report — it affects the trust placed in you.
This is exactly why a well-structured statutory audit checklist matters. Think of it like a pilot's pre-flight checklist. No matter how experienced the pilot, they still go through every item before take-off. Same logic applies here.

What Exactly Is a Statutory Audit?

A statutory audit is a mandatory audit under Section 139 of the Companies Act, 2013. Every company registered in India — private or public — must get its books audited by a qualified Chartered Accountant.
The purpose? To give a true and fair view of the company's financial statements to shareholders, lenders, and other stakeholders. Not just "books look clean" — but genuinely reflecting what is happening in the business.

For professionals who want to move beyond checklist-based auditing and understand the deeper practical application of assertions, CARO reporting, and audit documentation, structured frameworks like those covered in Master Blaster of Statutory Audit can significantly strengthen on-ground audit execution.

1. Pre-Audit Planning and Risk Assessment

Before touching the trial balance, planning is critical. Understanding the business model, internal controls, related party relationships, and major risk areas determines the direction of the entire audit.
A manufacturing entity carries inventory and valuation risk. A service company carries revenue recognition risk. Without identifying this early, audit testing becomes mechanical instead of risk-based.
Procedures:

• Verify appointment under Section 139
• Confirm independence under Section 141
• Review previous year audit report and management letter
• Perform preliminary analytical review
• Identify significant account balances
• Determine materiality levels
• Understand revenue, purchase, payroll cycles
• Review Board minutes and major contracts
• Identify related party transactions
• Assess fraud risk areas

2. Share Capital and Reserves

Capital structure affects compliance, stakeholder confidence, and presentation in financial statements. Errors here are usually legal or disclosure-related rather than arithmetic.
Procedures:

• Verify changes in authorized and paid-up capital
• Inspect ROC filings (SH-7, PAS-3)
• Check Board and shareholder resolutions
• Trace share application money to bank statements
• Review register of members
• Verify share certificates issued
• Check disclosure under Schedule III
  

Borrowings require careful review because they impact solvency, CARO reporting, and statutory compliance. The focus is not just balance verification but also end-use and authorization.
Procedures:

• Obtain loan sanction letters
• Confirm balances directly from lenders
• Verify interest computation and accrual
• Check compliance with Sections 179, 180, 185, 186
• Review security documentation and charge registration
• Verify classification between current and non-current
• Perform end-use verification of term loans
  

Fixed assets involve valuation risk, especially depreciation and capitalization. The auditor must ensure that assets exist, are owned, and properly valued.
Procedures:

• Reconcile Fixed Asset Register with ledger balances
• Verify additions with invoices
• Check revenue vs capital classification
• Review depreciation calculation as per Schedule II
• Verify residual value compliance
• Inspect physical verification reports
• Review asset disposal documentation
• Check CWIP and capitalization timing

Inventory is often one of the highest-risk areas because it directly impacts profit. Valuation and cut-off errors can materially misstate financial statements.
Procedures:

• Review stock count procedures
• Perform sample physical verification
• Verify valuation method (FIFO/Weighted Average)
• Test lower of cost or NRV
• Review inventory ageing for slow-moving items
• Perform purchase and sales cut-off testing
• Check goods-in-transit treatment

Receivables impact liquidity and often require judgment for impairment. The auditor must ensure balances are genuine and recoverable.
Procedures:

• Obtain ageing analysis
• Send balance confirmations
• Perform subsequent receipt testing
• Review doubtful debt provision
• Examine long-outstanding balances
• Verify advances to employees and suppliers

Cash and bank balances are highly sensitive. Even small discrepancies may indicate deeper control issues.
Procedures:

• Conduct cash verification
• Obtain bank confirmations
• Review bank reconciliation statements
• Check stale cheques and unpresented items
• Verify fixed deposits and interest accrual

These areas involve estimation and judgment. Miscalculations directly affect profitability and compliance.
Procedures:

• Verify deferred tax workings
• Check timing difference calculations
• Review gratuity and leave encashment provisions
• Verify actuarial valuation (if applicable)
• Review outstanding expenses
• Check prepaid expense allocation

Revenue is a significant risk area in every statutory audit. It affects profit, tax liability, and stakeholder perception. Revenue recognition must comply with applicable accounting standards and reflect genuine business transactions.
Procedures:

• Reconcile revenue as per books with GST returns (GSTR-1)
• Perform cut-off testing for year-end transactions
• Verify compliance with AS 9 or Ind AS 115
• Perform analytical review
• Trace sample invoices to dispatch documents
• Review credit notes issued after year-end
• Verify export documentation (if applicable)

Expense testing ensures profits are not overstated due to omission of liabilities or improper capitalization.
Procedures:

• Vouch major expense heads
• Test outstanding expenses and accruals
• Check prior period expenses
• Verify capital vs revenue classification
• Review related party expenses
• Reconcile GST input credit
  

Compliance failures can lead to contingent liabilities and qualifications in audit report. These areas must be thoroughly verified.
Procedures:

• Match TDS with Form 26AS/TRACES
• Verify quarterly TDS returns
• Compute interest for late deposit
• Reconcile GSTR-3B with books
• Verify ITC with GSTR-2B
• Check PF and ESI deposit timelines

CARO reporting should run parallel to the audit and not be left for finalisation week.
Procedures:

• Verify inventory physical verification
• Review loans to related parties
• Check fraud reporting
• Verify utilisation of borrowings
• Review CSR compliance
• Assess adequacy of internal audit system

Interestingly, many CARO clauses—especially around internal controls and utilisation of funds—overlap with risk areas typically examined in internal audits, which is why cross-functional exposure, such as concepts covered in Master Blaster of Internal Audit, strengthens overall audit perspective.

13. Schedule III and Disclosure Review

Even if balances are correct, incomplete disclosures can mislead users of financial statements. Presentation and disclosure form a critical part of audit opinion.
Procedures:

• Verify ageing disclosures of receivables and payables
• Review related party disclosures
• Check contingent liabilities
• Verify utilisation of borrowed funds
• Review accounting policies
• Confirm director disqualification disclosures

Before signing the audit report, the auditor must ensure that documentation supports conclusions drawn.
Procedures:

• Review working papers
• Obtain Management Representation Letter
• Verify compliance with SA 700/705/706
• Confirm director disqualification status
• Generate UDIN before signing
• Ensure financial statements properly signed