Statutory of Audit
Statutory Audit means a type of audit mandated by the law or a statute to make sure that the book of accounts is true and fair which is presented to the public and regulators. If the business meets certain criteria, then the statutory audit is mandatory. Generally, statutory audit means financial audit.
Statutory Audit Procedure
Statutory audit is required by industry regulators and government agencies. The statutory audit procedure is varied which includes the understanding of the operating environment and controls of a business entity. The procedure includes:
Understanding the Operating Environment: Learning about the industrial guidelines and the regulation criteria, the auditor checks whether they are ethical. Statutory audit procedure includes sending of questionnaires, checklists, surveys and also formal notifications.
Understanding Controls: A business entity’s control of operations is learnt by an auditor by asking the employees or even external auditors. Even reading industry publications or previous year audit report and working papers of the company will give operation control knowledge to the auditor.
Test Controls: In the statutory audit process, evaluation of corporate procedures by a specialist conducting regulatory audit and also operating mechanisms for fraud or prevention of error are included. Then they agree with industrial practises and standard set by the regulators. Those operating controls are adequate, performed properly and understood by all the employees who are involved in the process and they are also checked by the auditor.
Test Account Balances: They perform a test on account balances to check if the financial reports are error-free and comply with the regulatory standards, statutory principles and industry practise.
Test Account Details: The auditor then performs tests of accounts and balances on a bank or insurance company or even the hedge fund’s account balances to check that the audited statutory financial statements are accurate and complete.
Internal Audit and Statutory Audit
Internal Audit is an organisation or department of people within a certain company tasked to provide unbiased and independent reviews of the system and processes of the business organisations. These are employed by the company to directly perform audit by staying within the management and use the company standards with in-house resources.
Statutory Audit means a type of audit mandated by the law or a statute to make sure that the book of accounts is true and fair as presented to the public and regulators. This is conducted as per the provisions under Companies Act or even Tax Audit under Section 44AB of the Income Tax Act.
Internal audit and statutory audit are quite different. A statutory auditor cannot be the internal auditor. Statutory audit is done by the practising chartered accountant whereas internal audit is done by the employee of the company. Statutory audit is done annually while an internal audit is basically done to detect fraud or prevent errors. Internal audit and statutory audit also differ in the basic factor that the first is appointed by the management of the company while the latter is appointed by the shareholders of the company in the annual general meeting.
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A non-statutory audit is the review and verification process of the business of a company and it is not required by any law or statute. The non-statutory audit is a type of audit which is performed to identify an organisation’s weaknesses which may hamper the productivity and also the efficiency level of the business. Statutory and non-statutory audits differ in the very fact that one is authorised and governed by law while the other is done voluntarily without any legal or statutory force.
Types of Statutory Audit
The two most common types of statutory audit are:
Tax Audit – It is an examination of the tax return by the Internal Revenue Service (IRS) to verify that the income and deductions are accurate. A tax audit is done when the IRS chooses to examine the tax return more closely and to verify that income and deductions are accurate.
Company Audit – Under section 183(3) of the Company Act 1994, company audit means that the balance sheet and the profit and loss account or the income and expenditure account, or cash flow statement of a company will be audited by the auditor of the company.