The Audit that is compulsory as per the Law is termed as a ..............

This question was previously asked in
MH SET Paper-II: Commerce 7th April 2024
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  1. Statutory Audit
  2. Management Audit
  3. Internal Audit
  4. Balance Sheet Audit

Answer (Detailed Solution Below)

Option 1 : Statutory Audit
Free
MH SET Paper 1: Held on 26th Sep 2021
50 Qs. 100 Marks 60 Mins

Detailed Solution

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The correct answer is - Statutory Audit

Key Points

  • Statutory Audit
    • A Statutory Audit is an audit that is mandated by law for certain types of organizations or entities.
    • The purpose is to ensure that the financial statements of the organization comply with applicable laws and regulations.
    • It is typically conducted by an independent auditor to ensure objectivity and unbiased reporting.
    • Examples of entities that require statutory audits include:
      • Companies registered under the Companies Act.
      • Banks, insurance companies, and other financial institutions.

Additional Information

  • Other Types of Audits
    • Management Audit
      • Focuses on evaluating the efficiency and effectiveness of the management processes and practices in an organization.
      • It is not compulsory and is usually conducted internally for decision-making purposes.
    • Internal Audit
      • Conducted by the organization's internal team to ensure compliance with internal policies and controls.
      • Not mandated by law but helps in risk management and internal control improvement.
    • Balance Sheet Audit
      • Focuses specifically on verifying the accuracy of items reported in the balance sheet.
      • It is narrower in scope compared to statutory or internal audits.
  • Legal Framework
    • Statutory audits are governed by laws such as:
      • The Companies Act, 2013, in India for company audits.
      • Sector-specific laws like the Banking Regulation Act for banks.
    • Failure to conduct a statutory audit may lead to legal penalties, fines, or disqualification of directors.

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