What are the procedures for statutory audit?

Procedure for Statutory audit

A statutory audit is a legally required review of a company's financial records and operations. The process typically involves the following steps in detail:

1. Planning: The auditor will review the company's financial records and operations to determine the scope of the audit, including the areas that require the most attention. This includes understanding the company's business, industry and regulatory environment, as well as assessing the risk of material misstatement in the financial statements. The auditor will also identify the audit team, establish an overall audit strategy and develop an audit plan that outlines the specific audit procedures to be performed.
2. Testing of internal controls: The auditor will evaluate the company's internal controls and procedures to ensure they are adequate and functioning as intended. This includes assessing the design of internal controls and testing their operating effectiveness. The auditor will also evaluate the company's IT systems and processes to assess the risk of material misstatement due to fraud or errors in the financial statements.
3. Examination of financial records: The auditor will examine the company's financial records, including its balance sheet, income statement, and cash flow statement, to ensure they are accurate and comply with accounting standards. This includes performing analytical procedures such as ratio analysis, trend analysis and comparison with prior periods to identify any unusual or unexpected trends or movements.
4. Testing of transactions: The auditor will select a sample of transactions and test them to ensure they are recorded correctly in the financial records. This includes confirming the completeness, accuracy and validity of the transactions through testing such as vouching, tracing, and observation.
5. Completion of audit procedures: The auditor will complete any additional audit procedures deemed necessary based on the results of the previous steps. This includes procedures such as physical inventory observations, examining legal and regulatory compliance, and assessing the company's estimates and assumptions used in the financial statements.
6. Issuing an opinion: The auditor will issue an opinion on the company's financial statements, indicating whether they are free from material misstatement and in compliance with accounting standards. The auditor will also identify any matters of concern or material weaknesses in the company's internal controls and suggest recommendations for improvement.
7. Reporting to regulatory authorities: The auditor will report the findings of the audit to the regulatory authorities, as required by law. This includes filing the auditor's report and any other relevant documents with the relevant regulatory body.

Reference Links:-

How to Prepare Financial Statements: A Step-by-Step Guide with Examples

Why It Is Important to Have Accounting Standards in India

CA Tushar Makkar
Ex-Pwc | CA AIR 47 Nov' 17 | YouTuber 16k+ | Expertise in audit and internal financial controls