Company is an artificial entity which is separate from the owner and management. Section 2(20) of Companies Act 2013 defines company as company incorporated under this Act (i.e. the Companies Act 2013) or under any previous company law (i.e. Companies Act 1956).
What is Audit
Auditing is the process of carrying out a number of systematic and deliberate steps by an independent professional to ensure that the accounting has been carried out as per the relevant regulatory requirement. In Company Audit, statutory auditors also evaluate the effectiveness of internal control system of the company.
Liability of Company Audit
At the end of the financial year, every company irrespective of its nature and size has to prepare its financial statements as per the books of accounts in such a manner that it state true and fair views of affair of company. The financial statements so prepared are to be audited by the statutory auditor and are placed before the members for approval.
Due Date for Company Audit
Company audit has to be completed before the annual general meeting of the company, so that the audited financial statement and auditor report could be place in front of member during the Annual General Meeting.
In order to start a company audit the first and the foremost requirement of the statutory auditor is requirement of financial statement prepared by the management. Along with the financial statements, auditor also requires previous audit reports, original bank statements, receipts and ledgers, minutes of the entire board meetings conducted, copies of organisational structure and bye laws.
After receiving and assessing all the information contained in the documents provided by the management, the auditor plans the audit and discusses the scope of the audit,time frame to complete the audit and any other issues which might arise while assessing documents with the Key Managerial Persons (or Directors) of the company.
In third step, auditor conduct onsite field work. He speaks to staff members, review the process and procedure followed in company. Internal controls are evaluated by the auditor.
Then auditor prepares the draft audit report mentioning details of findings during the audit procedure. The findings may include mathematical error, error while posting of entries and any other audit concerns. He can also recommend the solution in the audit report. Draft audit report is given to the management for their review and response.
After receiving the management response, a final meeting is scheduled, to close any open end answer from management.
Consequence of non-compliance
As per section 128 of Companies Act 2013, if any company fails to maintain books of accounts in such manner that it gives true and fair view of the state of affairs of the company, then any Director, Managing director, Chief Financial officer or any such other person charged by the Board of the Company shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.
Section 129 of the Companies Act 2013, requires every company to prepare financial statement in such a way that it comply with Accounting standard notified under section 133 of the Companies Act 2013 and in form specified in Schedule III. If a company contravenes any of the provision of sec 133 then the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person charged by the Board with the duty of complying with the requirements of this section and in the absence of any of the officers mentioned above, all the directors shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
If a company fails to files the audited financial statement (along with auditor report) with Registrar of Companies before the due date, then as per the Companies (Registration Offices and Fees) Second Amendment Rule 2018, the additional fees of Rs 100 per day per form shall be payable.
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