Statutory audit readiness: the PBC list and where auditors focus

What is a statutory audit?

A statutory audit is an independent examination of a company's financial statements, required by law, that results in an opinion on whether the statements give a true and fair view. In India it is governed by the Companies Act 2013 and the Standards on Auditing, with presentation under Schedule III and additional reporting under CARO 2020. The auditor uses materiality and sampling to gather evidence; the company's job before the audit is to make sure the underlying records support every number.

What does the audit timeline look like?

• Planning: the auditor sets scope, materiality, and risk areas. Provide the prior-year file, the trial balance, and a list of significant transactions and changes.
• Interim: controls testing and early substantive work.
• Year-end fieldwork: substantive testing on the full-year numbers. The PBC list must be complete on day one.
• Completion: estimates, disclosures, related parties, going concern, subsequent events, and management representations.
• Sign-off: financial statements, audit report, CARO, and board and AGM timelines.

What is a prepared-by-client (PBC) list?

The PBC list is the set of schedules and supporting documents the auditor expects the company to have ready before fieldwork. Each item should be current, reconciled to the general ledger, and supported. It typically covers:

• Final trial balance and full general ledger, mapped to the financial-statement lines
• Bank confirmations and reconciliations for every account
• Fixed-asset register with additions, disposals, and depreciation workings
• Inventory count sheets, valuation workings, and slow-moving provisions
• Receivables and payables ageing, with confirmation lists and expected-credit-loss workings
• Borrowings, sanction letters, and covenant-compliance workings
• The related-party register and transaction schedule with terms
• Revenue by stream and a cut-off schedule around period end
• Tax reconciliations: GST, TDS versus 26AS, income-tax and deferred-tax workings
• Lease register and Ind AS 116 workings; provisions and contingencies schedule

Which reconciliations come first?

Finish these before fieldwork starts:

• Bank — every account, with reconciling items explained
• GST — books versus GSTR-1, GSTR-2B, and GSTR-3B, including input-credit reversals
• TDS — deducted and deposited against Form 26AS, with mismatches identified
• Inter-company — balances and transactions agreed with each counterparty entity
• Subledger to general ledger — AR, AP, fixed assets, and inventory tie to control accounts
• Revenue — reconciled to e-invoice and e-way bill data and to collections
• Payroll — GL cost reconciled to the payroll register and statutory filings

Where do auditors focus?

Testing concentrates on a handful of higher-risk areas:

• Revenue recognition and cut-off — sales in the right period, unusual period-end activity, credit notes early in the next period
• Related-party transactions — completeness against the register, arm's-length basis, approvals under Section 188, disclosure under Ind AS 24
• Journal entries — manual and top-side entries near period end, round numbers, unusual users (the management-override risk under SA 240)
• Accounting estimates — expected credit loss, impairment, provisions, useful lives, with a documented basis and a prior-year look-back
• Going concern and subsequent events — a board-approved forecast and a log of events to sign-off

What causes delays or a qualified opinion?

• Bank, GST, or inter-company reconciliations still open at the start of fieldwork
• Confirmations (banks, debtors, creditors, lenders, legal) not sent in time
• Estimates with no documented basis or look-back
• An incomplete related-party register, or missing approvals
• Weak revenue cut-off around period end
• Inventory count not observed or not reconciled
• Prior-period adjustments discovered late