Checklist For Statutory Audit of Public Limited Company

Statutory audit is a mandatory examination of financial statements presented by companies. This ensures that their statements accurately portray their current and past financial standing, providing an honest representation of the company’s current and past status.

An auditor must conduct various checks during a statutory audit of a public limited company. These include:

Financial Statements
Statutory audits are an essential step toward ensuring transparency and accuracy in data reporting. By uncovering errors caused by misapplying formulae or rules or simply forgetting information, statutory audits serve to protect data from misinterpretation or mistakes that might otherwise go undetected.

An auditor must use professional scepticism when reviewing accounting estimates such as fair values, impairment of assets, provisions, transactions with related parties and future cash flows. Furthermore, they should ascertain if a company can continue as a going concern.

A statutory audit’s goal is to provide reasonable assurance that financial statements are free from material misstatements, where misstatement could reasonably be expected to influence economic decisions made by users of the statements.

Balance Sheet
Statutory audit of public limited companies is critical in order to ensure that its financial statements present an accurate and honest picture of operations, track performance against peers and benchmarks, assess progress toward short- and long-term goals, as well as improve corporate governance.

A statutory auditor must thoroughly compare and contrast the profit and loss account of the current year with that of its counterpart from last year in order to identify any differences in expenses, significant shifts in fixed assets as compared to the prior year and valuation changes related to closing stock valuation. Furthermore, they should review changes to cash books, receivables and any accounting system or method changes or ways of reporting results.

Profit and Loss Account
Profit and Loss Account (PLA) – the main source of information for auditors about company performance is the P&L Account (PLA). Auditors analyze any profits or losses realized during the financial year as well as variations between fixed assets and closing stock from previous year accounts.

The EU framework for statutory audit has stricter requirements for entities of public-interest such as listed companies, credit institutions and insurance undertakings that fall into this category (PIEs). Member States may designate other undertakings of significant public importance. This reform aims to enhance quality statutory audits as well as restore investors’ faith in financial information that is key for cross-border investment and economic growth.

The new rules also strengthen the role of audit committees for PIEs, helping reduce financial, operational, and compliance risks while strengthening statutory auditors’ independence.

Cash Flow Statement
A cash flow statement (CFS) gives an accurate representation of where money comes into a company over time and where it goes out over a set period. It is one of the most critical documents filed by any business as it gives insight into whether there are sufficient funds available to pay debts and cover operating expenses.

The Cash Flow Statement (CFS) begins by showing cash generated from an organization’s operating activities, such as selling products and services directly to customers as well as salaries, rent, and income tax payments.

The second section of the CFS examines cash flows generated from investment activities. This encompasses any gains or losses from buying or selling assets as well as interest paid and dividends received.

Management Discussion and Analysis
Management Discussion and Analysis (MD&A) is a section in a company’s annual or quarterly filing that allows executives to assess its performance. However, unlike audited accounts, MD&A doesn’t reflect audit findings but rather only reflects management opinions and reflections.

Practitioners should acquire sufficient understanding of an entity’s internal controls relevant to preparing MD&A reports so as to plan an engagement and assess control risk. Such controls may be tested through inquiries with client personnel, inspection of documents and observation of activities relevant to preparation of an MD&A.

Regulators in major capital markets worldwide often require public companies to undergo audits, while many privately held businesses are exempt from such requirements. Studies have explored auditor selection among privately held businesses subject to audit exemption regulations; while FEE (2016) presented alternative audit strategies which might better meet current and future needs of small SMEs.