A financial statement audit results in a written opinion on whether the accounts give a true and fair view, prepared under the applicable financial reporting framework and carried out under the Standards on Auditing.
This describes the subject in general terms and is not advice; what applies depends on the facts, and the law changes.
Understanding the service
For companies, an audit is required every year under the Companies Act, 2013, whatever the size of the company. LLPs are audited where turnover or partner contribution exceeds the prescribed thresholds. Other entities may be audited because their own law, their constitution, a lender or a regulator requires it.
The financial reporting framework matters: companies prepare accounts under either the Accounting Standards or Ind AS, depending on the category of company, and the auditor reports against the framework that applies.
For companies, the auditor's report also deals with the matters the Companies Act requires and, where it applies, the Companies (Auditor's Report) Order.
An audit is not a guarantee that the accounts contain no error. It provides reasonable assurance, obtained through testing, judgement and evidence.
When it becomes relevant
- A company, which must be audited each year
- An LLP above the prescribed thresholds
- A firm, trust or society whose own law or constitution requires audit
- Accounts requested by a lender, investor or regulator
What the work usually covers
- Planning and assessment of the risks of material misstatement
- Evaluating the entity's controls relevant to financial reporting
- Testing balances, transactions and disclosures against evidence
- Confirmations from banks and third parties, where appropriate
- Reporting on the matters the applicable law requires
- Communicating findings and control observations to those charged with governance
Framework and sources
The law and professional standards this work is carried out under. Links open the official site.
How the work runs
- Appointment and planningConfirm independence, agree terms, understand the entity and assess risk.
- ControlsEvaluate the controls that bear on financial reporting.
- Substantive testingTest balances, transactions and disclosures.
- ConcludeEvaluate the evidence, discuss findings and agree adjustments.
- ReportIssue the auditor's report and communicate matters to those charged with governance.
A general sequence. Engagements differ, and the scope of each is agreed in writing.
Common questions
Is an audit required for a company with no activity?
A company is required to have its accounts audited each year under the Companies Act, 2013, irrespective of turnover or activity.
Is this the same as a tax audit?
No. A tax audit reports particulars required under the Income-tax law and is a separate engagement.
Will the audit detect every error or fraud?
An audit gives reasonable, not absolute, assurance. It is planned to detect material misstatement, but no audit can guarantee that nothing has been missed.