A statutory audit is a review of a company’s or government’s financial statements and records that is mandated by law. By looking at data like bank balances, bookkeeping records, and financial transactions, a statutory audit aims to ascertain whether an organization gives a fair and accurate representation of its financial position.
With an increasing number of corporate governance-related challenges and financial irregularities, statutory audit is under fire for its effectiveness. The law requires a statutory audit, and the statutory auditor reports on the accounts he examines and determines whether the company’s financial statements offer a true and fair representation of its state of affairs and profitability. Since external and independent auditors participate in the statutory audit, it is also known as external audit.
An internal audit’s main distinction from an external audit is that the results and reports are only given to the management of the organization. However, in external audits, much like statutory audits, the report is provided to the relevant government agencies and the company’s various shareholders.
Being subjected to a statutory audit does not imply misconduct. Instead, it is frequently a formality aimed to help prevent actions such as money laundering by guaranteeing regular scrutiny of various records by a competent third party. The same is true for various sorts of audits.
Why is it relevant in the modern environment?
Statutory audit is an audit that a company must perform in order to present its financial picture to the legal authorities.
Validation of Financial Statements
The accounting records created by the company’s management are validated by the external auditor. The auditor verifies that the financial records are accurate and free of material misstatements. The statutory audit gives an independent judgement on the company’s true and fair financial situation and profitability.
This reinforces the company’s financial position and helps to secure further investment required for long-term sustainability and growth.
Compliance with Statutory Requirements
A statutory audit provides the information required by law, allowing stakeholders to assess the company’s performance. Auditors are trusted by stakeholders because they are independent. They rely on their statutory audit report to make economic decisions. An external audit also ensures that financial statements comply with legislative standards and that all needed disclosures are provided.
Reduce the Likelihood of Errors and Fraud
While conducting the audit, the external auditor goes through all of the books of accounts and looks for errors and omissions. Such mistakes and omissions can be corrected, and accurate financial records can be maintained.
If there will be no independent check of the company’s financial records, employees may begin conducting scams that go undetected, resulting in financial and reputational loss. Hence, conducting external audits is very much essential. Statutory audit is usually done once a year, so the auditor is expected to visit the client several times a year, which makes employees think twice before committing fraud.
Obtain an Independent Opinion
The external auditor goes over all of the company’s financial details and is the most knowledgeable about the company’s financial situation. An independent opinion about the company’s operation can be obtained from an external auditor. This can assist in steering the company in the right direction. A statutory audit gives shareholders the necessary assurance that the company’s management is taking adequate care of the company’s overall operation.
Gain Credibility
Credibility is crucial to the company’s expansion. When a company has credibility, more people will undoubtedly want to invest in it. Additionally, it aids in gaining the confidence of government officials who now recognise the company’s dependability in the marketplace. Customers develop a favourable perception of the brand as a result, and this promotes the company’s expansion.
Verification of Internal Control Framework
Statutory auditors assess the internal control structure and accounting practices used by the client and determine whether the controls are effective, adequate and operational, whether accounting principles are consistently followed, and whether the financial records are consistent with the financial statements. A statutory audit assists in raising employee productivity and integrity. Employees refrain from wrongdoing because they are aware that external auditors will independently review their financial records.
As it assesses the efficiency of internal controls and internal audit procedures, a statutory audit aids organizations in strengthening their internal audit function.
Comparable financial statements
Statutory auditors also make sure that the format and content of financial statements are comparable to those from comparable organizations and earlier periods. If any events have occurred after the balance sheet date, then they are appropriately disclosed, all unusual transactions are disclosed, and that makes financial statements free from material misstatements. Additionally, auditors recognise any material deviation from generally accepted accounting principles and appropriately disclose it in their statutory audit report.
Services we offer in Statutory Audit
CAnest is a team of highly skilled and knowledgeable auditors who have worked all over the globe. These auditors have dealt with numerous clients from various industries, and they are skilled at tailoring their audit methodologies to the specific client environment and statutory audit service requirements.
Due to our objectivity and utmost dedication, our company has established a stellar reputation. Our approach is impartial and independent, and we offer our audit and assurance clients a lot of value.
We offer additional audit services, such as internal audit, financial audit, IT audit, and agreed-upon procedure audit, in addition to performing statutory audits of businesses.
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