How to Prepare for a Statutory Audit: Step-by-Step Process

A statutory audit is a mandatory examination of a company's financial records and statements as required by law. Under Section 44AB of the Income Tax Act, 1961, any person carrying on business whose total sales, turnover, or gross receipts exceed ₹1 crore in the previous year must get their accounts audited. For professionals, the threshold is ₹50 lakh. Additionally, every company registered under the Companies Act, 2013, regardless of turnover, must undergo a statutory audit by a practicing chartered accountant.

The audit is conducted to verify that the financial statements present a true and fair view of the company's affairs and comply with the applicable accounting standards (Ind AS or AS). The auditor issues a report that includes their opinion on the financial statements, and this report must be filed with the Registrar of Companies (ROC) within 30 days of the Annual General Meeting.

Start by ensuring all books of accounts are complete and up-to-date. This includes the general ledger, cash book, bank book, sales and purchase registers, and fixed asset register. Reconcile all bank accounts as of the balance sheet date. Any discrepancies in bank reconciliation statements must be resolved before the audit begins.

Next, prepare a trial balance that matches the general ledger. Verify that all inter-company accounts, if any, are reconciled. For companies with multiple branches, ensure branch accounts are consolidated. Also, confirm that all statutory dues such as TDS, GST, PF, and ESI have been deposited on time and that the corresponding returns are filed. The auditor will check for compliance with Section 43B of the Income Tax Act, which disallows certain expenses if not paid on time.

Maintain a comprehensive document checklist. The auditor will typically request the following:

• Financial statements: Balance sheet, profit and loss account, cash flow statement, and notes to accounts.
• Supporting schedules: Break-up of trade receivables, trade payables, loans, advances, inventory, and fixed assets.
• Statutory registers: Register of members, directors, charges, and contracts under the Companies Act.
• Tax records: Income tax returns, TDS certificates, GST returns, and tax audit report (if applicable).
• Board resolutions: Minutes of board meetings and annual general meetings, especially those approving loans, investments, or related party transactions.
• Bank statements and confirmations: For all accounts held during the year.
• Inventory records: Stock statements, physical verification reports, and valuation certificates.
• Fixed asset register: With details of additions, deletions, and depreciation calculations.

Organise these documents in a logical order, preferably in a digital folder with clear naming conventions. This saves significant time during the audit.

Related party transactions (RPTs) are a key focus area for auditors. Under Section 188 of the Companies Act, 2013, all RPTs must be approved by the board or shareholders, as applicable. Prepare a list of all related parties as per the definition in Ind AS 24 or AS 18. For each transaction, maintain supporting documents such as contracts, invoices, and board approval minutes.

Also, ensure compliance with the Companies Act provisions regarding loans to directors (Section 185), investments through more than two layers (Section 186), and disclosure of managerial remuneration (Section 197). The auditor will verify that the company has not violated any provisions and that necessary disclosures are made in the financial statements.

The statutory audit process generally follows this timeline:

• April to June: Preliminary planning by the auditor, including risk assessment and materiality setting.
• July to September: Interim audit work, including verification of internal controls, testing of transactions, and review of half-yearly results.
• October to December: Final audit fieldwork, including physical verification of inventory, confirmation of receivables and payables, and detailed testing of year-end adjustments.
• January to February: Drafting of the audit report and discussion with management on any proposed adjustments.
• March: Finalisation of the audit report and signing by the auditor. The report must be issued before the board meeting that approves the financial statements.

For companies with a March 31 year-end, the audit must be completed by September 30 (within 6 months) to allow for the Annual General Meeting to be held by September 30. However, many companies aim to complete the audit by June or July to avoid last-minute pressure.

Start your preparation at least three months before the audit begins. Appoint a qualified chartered accountant well in advance, and share your document checklist with them early. If you are unsure about any compliance requirement, consult a practising chartered accountant who can guide you through the process specific to your business structure.

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This page provides preliminary information. It is not legal advice. For your matter, consult a qualified professional.