Audit Of Limited Company (Guide 2023)

A corporate audit or audit of limited company involves examining its books of account to confirm their accuracy. The organization must select an auditor to conduct the audit. The purpose of an audit of a company’s financial statements is to enable the auditor to convey their opinion.

The Companies Act 2013 (‘Act’) stipulates several requirements that a private limited company must meet upon registration. Regardless of the company’s size or nature, auditing is one of the obligatory requirements it must adhere to.

The auditor must examine numerous ledgers, vouchers, and invoices to determine if they are accurate and properly managed. The Act and the Company Law Regulations require an annual audit of a limited liability corporation.

What is the need for an audit of a limited company?

A private limited company must comply with several requirements after being registered under the Companies Act of 2013 (the “Act”). No of the size or type of the business, conducting an audit is one such obligation that must be met.

A corporate audit is an examination of its financial records to determine whether they are accurate. An auditor must carry out the audit that the firm appoints. The goal of an audit of a company’s financial statements is to provide the auditor with a chance to voice their conclusions.

The auditor must examine several books of accounts, vouchers, and bills to see whether they are correct and kept up to date. According to the Act and Company Law Regulations, a private limited company must conduct an annual audit to comply.

What are the 3 main types of audits?

A private limited business may undergo several audits for various reasons. Private company audits can take the following forms:

Statutory Audit

Regardless of its profit or turnover, every private limited business is required to undergo a statutory audit. A statutory audit is also required of a corporation that suffers a loss. According to the Act and Companies (Accounts) Regulations of 2014, every private limited company must fully have its annual accounts audited each financial year.

After reviewing the data in the books of accounts, bank balance, and financial statements, the statutory audit’s goal is to ascertain if a firm is accurately portraying its financial status.

Internal Audit

The private limited company’s internal audit is carried out on the advice of its internal management. According to the Act and the Companies (Accounts) Regulations of 2014, the specified firms must employ an internal auditor to audit their operations. The limited private corporations listed below are required to undertake internal audits:

1. Private businesses with a prior fiscal year revenue of at least Rs. 200 crore
2. Private businesses with outstanding debt from banks or public financial institutions of at least Rs. 100 crore
3. Internal audits are performed to assess the organization’s operational effectiveness and the health of its finances. They assist internal management in conducting financial analysis and implementing the necessary adjustments to improve the effectiveness of its operations.

Cost Audit

The following private limited firms are required to conduct cost audits under the Companies (Cost Records and Audit) Regulations, 2014:

1. Private limited firms producing the commodities or rendering the services indicated in Table 3(A) of the Companies (Cost Records and Audit) Regulations and possessing the following characteristics:
   • Total yearly revenue from all its services and products is at least Rs. 50 crore for the most recent fiscal year
   • a service or product’s total annual revenue of at least Rs. 25 crore.
2. Private limited firms producing the commodities or rendering the services indicated in Table 3(B) of the Companies (Cost Records and Audit) Regulations and possessing the following characteristics:
   • Annual revenue from all of its services or products of at least Rs. 100 crore in the prior fiscal year.
   • Total revenue of at least Rs. 35 crore for the specific service or product.

What is the role of the auditor of a limited company?

Auditors are responsible for giving an unbiased assessment of a company’s financial performance and capacity to achieve its financial objectives. In the majority of circumstances, auditors conduct audits in collaboration with management.

Ownership and Command

There is a distinction between ownership and control in a limited liability business. In other words, the company’s owners are not always responsible for its management.

Shareholders may or may not participate in the day-to-day activities of a limited liability business. They instead designate directors to handle this for them. Hence, directors must make sound judgements for the benefit of shareholders.

A limited liability corporation must adhere to the law as part of making sound judgements. An annual audit of a limited company’s financial statements – the income statement and the statement of financial position (or balance sheet) – is an important regulatory obligation. Shareholders are responsible for selecting external auditors.

Function of Auditors

There are two primary audit types: internal and external. Employees of the organization perform internal audits to guarantee compliance with corporate policies. Auditors who are not linked with the organization perform external audits.

External auditors are obliged by law to fulfil the following tasks:

1. The auditor is responsible for evaluating the general compliance with the law and the specific compliance with the limited company’s needs. This includes reviewing the finances, financial statements, annual returns, and anything related to the firm to ensure compliance with the law.
2. In addition, they ensure that the limited company meets all of its liabilities and financial commitments. This also includes evaluating the business’s contracts and agreements.
3. They must be independent of the organization to audit its financial records. The filmmakers cannot influence them in any manner.
4. They must maintain objectivity and base their judgements on the evidence provided by the directors.
5. They are responsible for ensuring that the company’s accounting records adhere to worldwide accounting standards and the Companies Act.
6. So that shareholders are not misled, they should examine if the firm’s financial statements present a genuine and fair picture of the company.
7. They should check the absence of serious inaccuracies in the records.

Also, the designated auditors must be qualified to analyze the organization’s financial records. In addition, the directors should ensure that they have access to sufficient information and documents.

Accountability of Auditors

Auditors and accountants are also obligated by law to take specific precautions for their safety (i.e., example, not providing false or misleading information). 

Typically, their clients (i.e., the limited business) indemnify them for any activities they do.

If an auditor is careless in their duties, they may be held personally accountable for any losses or damages they cause to the company (i.e., the limited company).

FAQ : audit of limited company

1. What are limited audit procedures?

The term “limited” refers to an audit whose scope is narrower than a typical examination’s. Most limited audits are alternatives to standard statutory audits (general-purpose audits). The primary purpose and motivation for this restricted engagement are to cover a limited amount of ground.

2. What is the minimum turnover for an audit?

A financial audit is necessary if the annual revenue exceeds 10 crores. If the company’s revenue is 10 crores and its profitability is less than 5% of revenue (Section 44 AB).

3. Is internal audit compulsory for every limited company?

Hiring an internal auditor is mandatory for all publicly traded and “producing firms”, regardless of any other condition. Rule 13 of the Companies (Accounts) Regulations of 2014 stipulates that the following types of firms must employ an internal auditor or an internal auditing firm.

4. Who appoints the auditor of a limited company?

The Board of Directors nominates them. The Board of Directors may appoint the first auditor or auditors within one month of the company’s date of incorporation. The First auditors may serve until the end of the First Annual General Meeting.

5. Can my accountant be my auditor?

According to the Companies Act of 2013, only a qualified Chartered Accountant (CA) may be appointed as a company’s statutory auditor. A person is not qualified for appointment as the statutory auditor of a corporation unless they are qualified to serve in the role of an auditor.

6. What is the difference between limited review and audit?

In an audit, an affirmation or opinion is rendered, whereas, in a review, the reviewer only states whether or not they have observed anything that makes the financial statements inaccurate.

Conclusion

The Audit of Limited Company follows a cyclical pattern. The auditor must provide a credible justification for the institution’s audit cycle in assessing all annual budgets. The audit scheduling and planning are also based on the conclusions of risk assessments completed at least once a year. In the event, however, that residual risk equals or exceeds the institution’s stated risk appetite for a particular subject. Best practices recommend that the subject be audited at least once yearly and as frequently as deemed appropriate.

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