Last Updated on February 7, 2026
Statutory audit is not just a legal requirement but also a process in which a company’s financial statements are presented in a way that gives a true and fair picture. Many companies cannot understand what will actually occur during an audit or what documents or cooperation are required.
This blog describes a practical, step-by-step approach to a statutory audit, common pitfalls, and how professional assistance from Kanakkupillai can make the audit easy and legal.
Introduction
Statutory audits can be stressful for many companies due to insufficient preparation time, inadequate records, or insufficient knowledge of the audit requirements. Delay, audit observation and a qualified audit report may have an adverse effect with regard to credibility to investors, banks, and regulators.
Knowledge of the steps to be undertaken practically in a statutory audit assists businesses to be ready, eliminate rush time troubles, and make compliance under the Companies Act and other relevant laws hassle-free.
What is a Statutory Audit? (In Practical Terms)
Statutory audit is a compulsory review of the financial records of a business, which is done by an independent auditor and is mandated by law. The intention is to confirm that the financial statements are fair, complete and prepared as per their applicable accounting provisions and the law.
Companies that are registered under the Companies Act and some other entities that are stipulated by the law are obliged to have it.
Who Must a Statutory Audit Be Conducted on?
Statutory audit is obligatory for:
- Private limited companies
- Public limited companies
- One Person Companies (OPCs)
- Some of the LLPs and entities are according to turnover requirements.
Small companies and even startups are not exempt, as they have to keep up with statutory audit requirements once they are in the eligibility bracket.
Practical Steps Involved in a Statutory Audit
Step 1: Appointment of the Statutory Auditor
- The statutory auditor is appointed, and this is the starting point of the audit process.
- First auditor appointed by the Board.
- Shareholders are then appointed to fill the next audit position.
- Reporting of the appointment goes to the Registrar of Companies.
- The audit itself loses its validity in the absence of a valid auditor appointment.
Step 2: Audit Planning, Audit Scope
The auditor will develop an audit plan on the basis of:
- Nature of business
- Operation size and complexity.
- Risk areas and internal controls.
This step identifies the areas that need further validation and establishes deadlines for the audit.
Step 3: Business and Internal Controls Understanding
Auditors study:
- Business operations
- Accounting systems
- Internal control measures
This assists them in realising the areas of risk, which could be revenue recognition, expenses, inventory, or statutory compliance.
Step 4: Financial Records and Documents Collection
The company must present such documents as:
- Books of accounts
- Bank statements
- Invoices and vouchers
- Payroll records
- Tax returns (GST, TDS, income tax)
- Statutory registers
One of the largest causes of the delay in audit is incomplete or disorganised records.
Step 5: Verification and Audit Testing
Included in the detailed checks by auditors are:
- Transaction testing on a sample basis.
- Verification of balances
- Bank, GST, and tax records reconciliation.
- Adherence to accounting standards.
It is at this stage that any discrepancies or unusual transactions are highlighted.
Step 6: Audit Enquiries and Management Explanations
Auditors pose questions or demand explanations of:
- Missing documents
- Irregular transactions
- Problems in accounting treatment
There are timely and accurate clarifications that the management is expected to offer in order to evade negative audit remarks.
Step 7: Prepare Audit Observations
According to the findings, the auditor prepares:
- Draft observations
- Remarks on non-adherence or weaknesses
- Suggested adjustments
Wherever feasible, management can correct any errors that occur before finalisation.
Step 8: Finalisation of Audit Report
The auditor then presents the statutory audit report that may be:
- Unqualified (clean report)
- Qualified
- Adverse
- Disclaimer of opinion
The audit report is an important component of the annual filings to the regulatory bodies.
Common Challenges Faced During Statutory Audit
Businesses are usually afflicted with the following problems:
- Poor bookkeeping
- Lack of reconciliation of bank accounts/ GST.
- Failure to submit documents on time.
- Failure to comply with legal provisions.
These problems are capable of resulting in qualified audit reports and fines.
How Kanakkupillai helps in Statutory Audits?
Kanakkupillai offers end-to-end statutory audit services so that businesses are in full compliance and audit-ready.
Our support includes:
- Pre-audit compliance review
- Audit documents preparation and organisation.
- Co-ordination with statutory auditors.
- Resolution of audit queries
- ROC filings and compliance after audit.
By utilising Kanakkupillai, companies will have a chance to evade audit strain and have a hassle-free audit in a timely manner.
Practical Example
One of the companies, based in the state of a private limited company and with increasing turnover, was facing frequent audit questions because of the GST mismatch and missing records. Due to the help of the organised audit provided by Kanakkupillai, the reconciliations were done beforehand, documents were properly arranged, and the company was provided with a clean audit report without delays.
Conclusion
Statutory audit is a clear and structured process that is very successful in compliance and preparation. Knowledge of the practical steps to be undertaken assists businesses in preventing last-minute problems and adverse commentary on the audits. Under the professional guidance of Kanakkupillai, the companies will be able to handle statutory audit, compliance, and financial credibility without concern.
Frequently asked questions
1. What are some of the key procedures of a statutory audit?
Primary procedures involve appointment of the auditors, planning the audit, verifying documents, conducting audit tests, seeking clarifications with the management and the release of the audit report.
2. What is the average duration of a statutory audit?
The duration of a statutory audit is usually between 2 and 6 weeks; this is based on the size of the business and accessibility to records.
3. What will be the case if problems are discovered in a statutory audit?
Auditors ask questions and note down observations, and the management can answer or correct them before completing the audit report.
4. Is a statutory audit compulsory for small companies?
Yes, a statutory audit is required for companies incorporated under the Companies Act, irrespective of turnover.
5. Is a statutory audit report revisable?
When published and registered, one can be revised, but only under certain legal conditions.
