Role of a Statutory Auditor Post-Formation of a Company

Introduction

A statutory auditor is a chartered accountant appointed under the Companies Act, 2013 to conduct an independent examination of a company’s financial records. Once a company is incorporated, it must appoint a statutory auditor to ensure transparency, accuracy, and legal compliance in its financial reporting. The role of the statutory auditor goes beyond checking balances; it includes evaluating the company’s internal controls, adherence to accounting standards, and safeguarding stakeholders’ interests. This article defines what a statutory auditor does after the formation of a company.

Appointment of Statutory Auditor

Under Section 139 of the Companies Act, every company (except a One Person Company) must appoint its first statutory auditor within 30 days of incorporation by the Board of Directors. If the board fails to appoint, the shareholders must appoint the auditor within the next 90 days in a general meeting. The auditor holds office until the conclusion of the first Annual General Meeting (AGM), after which a regular auditor is appointed for a term of five years, subject to ratification.

Verification of Books of Accounts

The statutory auditor reviews the company’s books of accounts maintained as per Section 128 of the Companies Act. These include the ledger, journal, cash book, inventory records, and bank statements. The auditor checks for completeness, accuracy, and proper classification of financial transactions and ensures they are recorded using the accrual basis and double-entry system.

Examination of Financial Statements

A key responsibility of the statutory auditor is to audit the financial statements — namely, the balance sheet, profit and loss account, cash flow statement, and statement of changes in equity. The auditor ensures that these statements give a true and fair view of the company’s financial position and performance as per applicable accounting standards and legal requirements.

Reporting to Shareholders

The statutory auditor submits an audit report to the shareholders at the AGM. This report includes the auditor’s opinion on the truthfulness and fairness of the financial statements. It also highlights any irregularities, material misstatements, or non-compliance. The report forms part of the Form AOC-4, which is filed with the Registrar of Companies (ROC).

Evaluation of Internal Controls

Auditors assess the effectiveness of the company’s internal control systems, especially in relation to financial reporting and fraud prevention. For certain classes of companies, the statutory auditor must report on the internal financial controls under Section 143(3)(i), which includes the auditor’s opinion on whether these systems are adequate and operating effectively.

Compliance Verification

A statutory auditor ensures that the company has complied with applicable laws, including:

• Companies Act provisions
  
• Income Tax and GST regulations
  
• Provisions related to deposits, loans, and related party transactions
  The auditor checks whether statutory dues have been paid on time and if returns have been filed correctly.
  

Detection and Reporting of Frauds

Under Section 143(12) of the Companies Act, if the auditor detects any fraud by officers or employees exceeding the prescribed amount, they are required to report it to the Central Government or the Board of Directors, depending on the materiality of the fraud. This role helps ensure ethical conduct and accountability within the company.

Assistance in Tax and Other Audits

Statutory auditors also coordinate with tax auditors and help prepare for income tax assessments, GST audits, and regulatory inspections. While their primary duty is statutory reporting, their findings and reports form the basis for other compliance procedures.

Maintenance of Auditor’s Independence

The auditor must remain independent and unbiased in the performance of duties. They should not hold any interest in the company or have close relationships with directors or management. The Companies Act prohibits the appointment of an auditor who is disqualified under Section 141, including auditors with business relationships or employment in the company.

Conclusion

The statutory auditor plays a vital role in maintaining financial integrity and legal compliance after the formation of a company. Through diligent auditing of accounts, evaluation of controls, and fair reporting, the auditor helps ensure that the company’s financial statements reflect its true financial health. Their work safeguards stakeholder interests and supports transparent governance. Appointing a qualified statutory auditor and facilitating their work is essential for any company committed to ethical and compliant business practices.

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