1. To: Mr. Sheridan
Managing Director
Sheridan Audio Visual Ltd
Dear Mr. Sheridan
Good day! I’m writing to discuss about the legal requirements for audit of both a private limited
company and a public limited company listed on the stock exchange, the statutory duties of the
auditor, the statutory duties of the directors for reporting the financial results of the business and
the advantages of having an audit.
Regardless of size, stature or nature of the business, all private limited companies have to maintain
books of accounts audited by a practicing Charted accountant before the conclusion of the
Financial Year. This process of meeting the compliances also involves the appointment of an
auditor. Auditor will evaluate the accounts and produce Audit report and Audited financial
statements which they will file with the registrar of companies of the relevant area.
The auditing process is an annual procedure which comes under compliance requirements of
companies. And the following are the compliance requirements in addition to the auditing process:
• An auditor will be appointed within one month of company incorporation. Tenure of
Auditor will be 5 years.
• Companies shall prepare their financial accounts for an annual compulsory audit by a
practicing Chartered Accountant
• Private Limited Companies shall file their Annual returns for the Financial Year
according to form MGT-7 within 60 days of conducting their Annual General Meeting
• All Pvt. Ltd companies are to file their Balance Sheet, Profit and Loss account Statement
along with Director’s report included in the form to be done 30 days within conducting
their Annual General meeting
•Company will hold an Annual General Meeting (AGM) at least once per calendar year. It
is required to hold an AGM 6 months prior to the conclusion of the financial year.
•A Director’s report has to be prepared with all relevant information in accordance with
Section 134
2. And next, the following are main statutory duties of an auditor:
•To give report on the accounts which are audited by him.
•To give audit report of balance sheet and profit and loss account.
• To audit the documents which are attached with balance sheet and profit and loss account
of company.
It is the statutory duty of an auditor that he should express his true opinion in his report. His opinion
should not be affected from management and other agents' opinion. His opinion should be free.
Auditor should ensure that balance sheet and profit and loss account have been made on the basis
of accounting books and evidences. Sometime, honest accountant wrote truth in accounts books
without any voucher. For example, accountant of any company has recorded the journal entry of
bribe. At that time, chartered accountant should trust on his recorded mobile voice of corrupted
party or his own tongue. Auditor should give all information in the prescribed manner.
Auditor should make his audit report on the basis of available information. Auditor should also his
own brain and common sense. If there are many important information which are required but not
available, then he should mention this fact in his audit report.
Auditor should see whether company fulfills all legal compliance. He should read all related laws'
provisions updates.
The above statutory duties are fixed by Law but company can increase his duties by passing the
resolution in annual general meeting.
Speaking of statutory duties of the directors for reporting the financial results of the business, the
directors are responsible for keeping proper accounting records which disclose with reasonable
accuracy at any time the financial position of the Company, for safeguarding the assets, for taking
reasonable steps for the prevention and detection of fraud and other irregularities and for the
preparation of a directors’ report and directors’ remuneration report.
The directors are responsible for preparing the financial statements in accordance with applicable
law and regulations. Prepare financial statements for the company in accordance with International
Financial Reporting Standards (IFRSs) and accounting standards.
International Accounting Standard 1 requires that financial statements present fairly for each
financial year the Company’s financial position, financial performance and cash flows. This
requires the faithful representation of the effects of transactions, other events and conditions in
accordance with the definitions and recognition criteria for assets, liabilities, income and expenses
set out in the International Accounting Standards Board’s ‘Framework for the Preparation and
Presentation of Financial Statements’.
In virtually all circumstances, a fair presentation will be achieved by compliance with all
applicable IFRSs. Directors are also required to:
3. •Properly select and apply accounting policies;
•Present information, including accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information;
•Provide additional disclosures, when compliance with the specific requirements in IFRSs is
insufficient to enable users to understand the impact of particular transactions, other events and
conditions on the entity’s financial position and financial performance; and
•Make an assessment of the Company’s ability to continue as a going concern.
And now let’s move to the advantages of having an audit. Through operating a business, you may
run the risk of errors or irregularities occurring within. It is also desirable to check and deter fraud
by carrying out a regular audit. The following are the major benefits that an audit provides:
•Compliance - obviously this is one of the main reasons to conduct an audit: to meet the
statutory requirements and regulations in your industry. An audit provides complete peace
of mind for business owners and shareholders that the organization is 100% compliant with
all of its current statutory obligations. Non-compliance runs the risk of incurring heavy
fines, loss of customers and a tarnished reputation – damage that far outweighs the cost
and any minimal, temporary inconvenience that may be caused by an audit.
•Business Improvements / System Improvements
A thorough, in-depth audit takes an impartial look at your organization’s internal systems
and controls. This means it’s an ideal opportunity for the auditing experts to suggest
improvements that can make your business more efficient. Ways to improve internal
controls, business systems, accounting practices, efficiencies, governance and culture can
all be identified through the audit process.
•Credibility
An audit provides independent verification that the financial statements are a true and fair
representation of the entity’s current situation. This provides invaluable credibility and
confidence to your organization’s customers/clients, stakeholders, investors or lenders and
even potential buyers. It is confirmation that financially everything is as it appears to be.
•Detect and Prevent Fraud
Based on a study, up to 30% of businesses are subject to fraud, error and corruption.
Workplace fraud can occur for years without being detected and can be so substantial that
some businesses never recover financially or repair their reputations. An audit can be an
effective tool for identifying fraud and opportunities to commit fraud. Experienced auditors
are skilled at pinpointing weaknesses in an organization’s systems and controls and
suggesting ways to strengthen these to prevent fraud occurring.
4. •Better Planning and Budgeting
An audit confirms the accuracy of an organization’s financial statements by analyzing its
financial transactions. It’s a detailed process and can result in certain types of income,
expenditure, assets and liabilities being scrutinized. This critical examination, coupled with
the auditor’s financial expertise, can then be used by business owners for better financial
planning, budgeting and financial decision-making for the future.
(The Auditor)
Acknowledged on behalf of Sheridan Audio Visual Ltd
By:
(signed)
......................
Name and Title
Date
