Statutory audit explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
When something goes wrong in a company, three different exercises are often confused: the statutory audit the company already has, an investigation ordered under the Companies Act, and a forensic review that a board or lender commissions. They differ in purpose, in who sets them in motion, in the powers of the person doing the work and in what the report is allowed to say.
This guide places them side by side for directors, finance heads, lenders' advisers and students, and then explains how a board scopes a forensic review. Where the review is part of a deal, it usually sits inside financial and legal due diligence.
A statutory audit gives an opinion on the financial statements, by sampling, under the Companies Act. An investigation is ordered by the Central Government or on a Tribunal order, and inspectors hold statutory powers. A forensic review is usually a contractual engagement that traces specific facts in full and reports findings of fact, not guilt. The three can run at the same time on the same transaction, and none replaces the others.
The main comparison
The first two columns rest on the Companies Act; the third column is a description of normal forensic practice and the live standards posts, not a statutory scheme.
| Point | Statutory audit | Investigation | Forensic review |
|---|---|---|---|
| Purpose | An opinion on whether the financial statements give a true and fair view | Finding out the affairs, fraud or ownership of the company | Establishing what happened to specific money, stock or transactions, and by whom |
| Trigger | Every company's annual cycle | Central Government order, special resolution, public interest, or a court or Tribunal order | A board, lender or investor decision, or a finding by another body |
| Who appoints | The company, as the Act provides | Central Government, which appoints inspectors or assigns to the SFIO | The party that engages the reviewer |
| Period covered | The financial year | As the order or appointment defines | As the scope letter defines |
| Scope | Financial statements as a whole | Defined by the order | A defined list of questions |
| Method | Sampling and tests on a risk basis | Examination of records and persons under statutory powers | Examination in full of the chosen items, with interviews and data analysis |
| Powers to call for records | Right of access to books and vouchers; may require information from officers (section 143(1)) | Powers of an inspector (section 217) | Only what the engagement and the company allow |
| Standard followed | Accounting and auditing standards (section 143(2)) | The Act and the order | Professional standards for forensic work, by link |
| Evidence standard | Enough appropriate audit evidence for an opinion | Material to report to the Central Government | Evidence able to be tested by others later |
| Report goes to | Members | The Central Government | The engaging party |
| Leads to | Qualified or clear opinion; fraud reporting under section 143(12) | Prosecution or other steps by the Government | Board action, claims, complaint, lender decision |
For the sections behind the first two columns see section 143 and the post on the powers of inspectors.
What the statutory auditor actually has
The auditor has a right of access at all times to the books of account and vouchers and may require from officers the information and explanation considered necessary (section 143(1)). The same sub-section lists matters the auditor inquires into, such as whether loans are properly secured, whether personal expenses are charged to revenue and whether cash was actually received on shares allotted for cash. The report goes to the members (section 143(2)). It must also say whether all the information and explanations needed were obtained (section 143(3)(a)). A statutory audit is by design a test of the statements, not a hunt for every irregularity. Where the auditor finds reason to believe in fraud, a separate duty applies under section 143(12); see our post on fraud reporting.
An audit is also not a review or an agreed-upon procedures engagement; the levels of assurance are explained in the post on audit, review, agreed-upon procedures and compilation.
What an investigation adds
Sections 210 to 217 give the Central Government powers to order an investigation and to appoint inspectors, and provide for the Serious Fraud Investigation Office. Section 212(4) gives the Investigating Officer the power of an inspector under section 217. The route and the triggers are in our law map of forensic audit and investigation.
Commissioning a forensic review: practice, not a legal requirement
When a board or lender decides to hire a forensic reviewer, these points keep the work usable. The list is TaxClue's own practice outline.
| Step | What to settle |
|---|---|
| Scope letter | The questions to answer, the items and period covered, the exclusions and the deliverable |
| Independence | The reviewer should not be the company's statutory auditor or involved in the transactions; consider the question of independence in writing |
| Access | Who will give records, systems and people; what happens if access is refused |
| Preserving records | Image devices and freeze deletion before the work begins |
| Interviews | Who is interviewed, in what order and with what notes |
| Experts | Use of data or IT specialists, and who engages them |
| Reporting line | To whom the reviewer reports and who may see drafts |
| Report content | Facts found, the evidence for each, the limits of the work; no finding of guilt |
The live FAIS posts on engagement acceptance and planning and on fraud risk and red flags cover the professional standards. The reason the report states facts and not guilt is simple: guilt is for a court to decide, and a reviewer who writes it invites a challenge to the whole report. Listed companies have further requirements, not covered here.
Worked example: a stock shortage
Rathore Steel Fabricators Private Limited (invented) finds, on a year-end count, stock worth ₹2,10,00,000 against book stock of ₹2,40,00,000. The difference is ₹30,00,000, which is 12.5 per cent of book value (all figures assumed).
- The statutory auditor attends the count, tests the records on a sample basis, considers whether the difference is material to the statements and, if fraud is suspected, applies section 143(12).
- A forensic reviewer, engaged by the board, examines every goods-in and goods-out entry for the year, matches them with gate passes and transport records and interviews store staff. The report sets out the facts and the figures that could be traced, and says what could not be.
- An inspector or the SFIO, if the Central Government orders an investigation, could call for records and examine persons under the powers in section 217.
The three can overlap but answer different questions: whether the statements are fair, what exactly happened, and what the State should do about it.
Common lapses
- Expecting the statutory auditor's report to find every irregularity.
- Engaging as forensic reviewer a firm that is also the auditor or advised on the transactions.
- Starting without a written scope, so the work drifts and costs rise.
- Letting staff delete or "tidy" records before the images are taken.
- Drafting a report that names a person as guilty.
Need help with a forensic review?
A clear scope, secure records and an independent reviewer decide whether a review is of use later. Our financial and legal due diligence team can scope the questions, coordinate the records and prepare the report in a form the board can act on.
Key takeaways
- A statutory audit is an opinion by sampling; an investigation is a statutory inquiry; a forensic review is a contractual trace of facts.
- The three answer different questions and can run together.
- Inspectors hold statutory powers; a forensic reviewer has only the access the company gives.
- A good scope letter, independence and preserved records come first.
- A forensic report states facts and limits, not guilt.
Read next
- Forensic audit and investigation of a company: the laws under which it arises
- Crisis management for a company board
- Forensic accounting and investigation standards: the framework
Disclaimer: Based on the Companies Act, 2013 (MCA consolidated text) and, for the Essential Commodities Act, 1955, the India Code text showing amendments up to Act 40 of 2021, as consulted on 6 October 2026. Later amendments, rules, notifications and control orders should be checked in their current form. Checklists, report outlines and examples are illustrative drafting by TaxClue with invented names and figures. This article is general information, not legal advice; check the official text before acting.