Is It Mandatory for Statutory Auditors to Sign the Financial Statements They Audit?

A common query that arises in the realm of corporate governance and financial reporting is whether statutory auditors are mandatorily required to sign the financial statements of a company, in addition to signing the auditor’s report.

Let us explore the statutory provisions under the Companies Act, 2013 and relevant auditing standards to clarify this issue.

1. Provisions under the Companies Act, 2013

Section 134(1) – Signing of Financial Statements by the Board

As per Section 134(1) of the Companies Act, 2013:

“The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the Chairperson of the company where he is authorised by the Board or by two directors out of which one shall be the managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed...”

This section clearly lays down that only the directors and Key Managerial Personnel (KMP) are required to sign the financial statements before submission to the auditor for reporting.

It is important to note that Section 134 does not mention the statutory auditor as a signatory to the financial statements.

Section 145 – Auditor to Sign the Auditor’s Report

Section 145 states:

“The person appointed as an auditor of the company shall sign the auditor’s report or sign or certify any other document of the company in accordance with the provisions of sub-section (2) of section 141…”

This section only mandates the auditor to sign the audit report, and not the financial statements themselves. It does not directly impose any obligation on the auditor to sign the financial statements.

2. Then Why Do Auditors Commonly Sign Financial Statements?

Despite the lack of an express statutory mandate in the Companies Act, 2013 for auditors to sign or certify the financial statements, in practice, auditors do sign or initial each page of the audited financial statements.

This is done primarily for the following reasons:

3. Practical and Professional Considerations

A. Authentication and Linkage to Audit Report

When an auditor issues an audit report, they are providing an opinion on a specific set of financial statements. To avoid any ambiguity, it is essential to clearly identify the financial statements that were audited. Signing or initialing each page of the financial statements ensures that:

• There is authenticity and traceability to the audited documents.

• The users of the financial statements can verify that the report issued by the auditor corresponds to those exact statements.

• No subsequent modification is made to the financials after audit without the auditor’s knowledge.

This process is not a statutory requirement under the Act, but rather a professional practice for safeguarding the integrity of the audit.

B. Auditing Standards (SA 700, SA 700(R))

As per Standards on Auditing (SA) 700 – Forming an Opinion and Reporting on Financial Statements, issued by ICAI:

• The auditor’s report must include a reference to the financial statements that were audited, identifying them by title and date, and describing the statements audited (balance sheet, P&L, etc.).

• It requires the auditor to ensure that the financial statements are appropriately identified and attached or referenced with the report.

Even though SA 700 does not explicitly state that the auditor must sign each page of the financial statements, this practice evolved to meet the requirement of proper identification and documentation of the audited records.

In listed entities and public companies, the auditors often include a note such as:

“We have initialed the financial statements for identification purposes.”

This note, coupled with their initials or signature, is considered a professional standard practice and may be demanded by regulatory authorities (like SEBI, ROC, etc.) during compliance or inspection.

C. ICAI Guidance and Peer Review Standards

Further, the Institute of Chartered Accountants of India (ICAI), through its Peer Review Guidelines, expects auditors to demonstrate that they have audited the specific version of the financial statements issued. Signing or initialing each page is one of the ways to comply with this expectation.

4. Conclusion

In conclusion, while the Companies Act, 2013 does not mandate statutory auditors to sign the financial statements per se, it is a recognized and widely followed professional practice to do so. This ensures that:

• There is no confusion regarding the version of the financials that were audited.

• The audit opinion can be clearly linked to the audited statements.

• It provides additional safeguards for the auditor in the event of disputes or scrutiny.

Hence, though not compulsory under the Companies Act, it is highly advisable and necessary as a matter of best practice that the statutory auditor signs or initials the financial statements that are the subject of the audit report.

Disclaimer:

This article is intended for general informational purposes only. While every effort has been made to ensure the accuracy of the information provided, readers are advised to refer to the relevant provisions of the Companies Act, 2013, ICAI's auditing standards, and professional guidelines before making any legal or professional decisions. This article does not constitute legal or professional advice. The author assumes no responsibility or liability for any reliance placed on the content herein.

From the desk of CS SHARATH