## Statutory vs Voluntary Audit

### Statutory (Mandatory) Audit — Mnemonic: C2A PEBI

Audit is compulsory under law for the following types of entities:

Code	Entity	Applicable Law
C	Companies	Companies Act, 2013
C2	Cooperative Societies	Cooperative Society Act, 1912
A	Bodies created by Acts of Parliament	e.g., LIC Act
P	Public and Charitable Trusts	Public Trust legislation
E	Electricity Supply undertakings	Electricity Supply Act, 1948
B	—	(bridge letter in mnemonic)
I	Specified entities	Income Tax Act, 1961

### Voluntary Audit

Audit may be conducted without legal compulsion in situations such as:

Incoming partner — a new partner may require audited accounts before joining
Death of a partner — accounts audited to fairly settle the deceased partner's interest

### Who Appoints the Auditor?

Entity Type	Appointing Authority
Government Companies	Comptroller and Auditor General (CAG)
Other entities	Owners / Government authorities

### To Whom is the Report Submitted?

Entity	Report Submitted To
Companies	Shareholders (at the Annual General Meeting)
Firms	Partners

Worked example

### Example 1

A private limited company must get its accounts audited under the Companies Act, 2013 — this is a statutory audit. A partnership firm voluntarily gets its accounts audited before admitting a new partner — this is a voluntary audit, with no statutory compulsion.

### Example 2

A government company's auditor is appointed by the CAG under the Companies Act. A private company's auditor is appointed by shareholders at the AGM — two different appointment mechanisms for the same audit requirement.

⚠️ Common exam mistakes

Thinking all audits are statutory — voluntary audits are common in partnerships and other non-statutory contexts
Confusing appointment authority: CAG appoints for government companies; shareholders appoint for private/public companies
Saying the audit report is submitted to management — it is submitted to shareholders (companies) or partners (firms), not management

Reference:

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Statutory vs Voluntary Audit — Mandatory Audit, Appointment, and Reporting

Worked example

⚠️ Common exam mistakes