Applicability of Audit
Put simply, a statutory audit is an independent assessment of the financial accounts of a company or institution. The auditor’s role is to report on whether the financial statements issued by an organisation are ‘true and fair’, and meet all relevant guidelines or legal requirements. This in turn allows companies to guard against risk and plan for the future. For example, statutory audits are required specifically by institutions, such as banks, brokerage companies and insurance companies in the UK. This is because these types of businesses need to comply with very specific financial regulations, such as capital requirements and the regulatory agencies that oversee these businesses require a statutory audit to show UK GAAP compliance.
Statutory Audit
For example, in 2012, there is no longer a requirement for Small- and Medium-sized Enterprises (SMEs) to submit to statutory audits, if they meet certain threshold requirements. Such changes are part of the government’s move to remove financial burdens from SMEs and streamline business practices. Also, in the UK, public agencies are audited by the National Audit Office (). However, UK-registered companies may also be subject to statutory audits and business owners should check with a qualified accountant what their specific requirements are under UK GAAP and UK law. A qualified accountant or an accounting firm can easily advise you on what your specific requirements are, as well as advise you on possible regulatory and tax code changes.
One of the main tasks is to make a financial risk assessment of the company or institution. In addition to delegating member countries the responsibility for auditor quality assurance, Directive 2006/43/EC mandates that statutory audits follow international auditing standards. Similar to the provision in the Sarbanes–Oxley Act, the European Council Directive requires that the scope of statutory audits include formal audit of the effectiveness of internal controls, internal audit function, and risk management. EC member countries use the requirements in Directive 2006/43/EC and other EC policies and guidance to structure national laws applicable to publicly traded companies and to implement requirements such as registries of audit firms and national oversight bodies.
A non-statutory audit can be conducted for any function of an organization. It provides an insight into various areas of business such as operations, management, human resource and customer satisfaction, etc. Besides the normal audit report as per the statutory requirements, the terms of the public, private & foreign sector banks requires the auditors to furnish an LFAR.
A statutory audit is a legally required review of the accuracy of a company’s or government’s financial statements and records. The purpose of a statutory audit is to determine whether an organization provides a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records, and financial transactions. The law firm responsible for making this statutory auditing requires all the municipalities which are performed by that government organization.
What is statutory and non statutory audit?
Statutory Audit is conducted to ensure that all the financial details of the company are perfect without any scam. Reports regarding this audit will be submitted to the shareholders. Internal Audit is conducted by the management itself to ensure that they are following the specified rules and regulations.
It involves scrutiny of all financial statements and accounts related to the organization to ensure their reliability and avoid any misrepresentation or discrepancies. The findings of a statutory audit are legal and binding and can lead to citation or fines or both. All registered business enterprises are mandated to undergo statutory audit for the preparation of accurate financial statements.
External Audits
Statutory Audit is a legally required external audit conducted annually to meet a specific set of requirements by the government. It relies on the internal audit reports, verification of financial information, documents and related stock validations. Scope and nature of audit programme are subject to the specifications of the governmental body and financial institutions.
In India, the term “statutory auditor” refers to an external auditor whose appointment is mandated by law. A “statutory audit” is a legally required review of the accuracy of a company’s or government’s financial records. The European Union has also made efforts to mandate statutory audits and statutory auditors on an EU-wide level. The law and the rules and regulations established to implement its provisions apply only to certain types of financial institutions. Audits of GLBA compliance are one of several supervisory and oversight functions that use Federal Financial Institutions Examination Council (FFIEC) principles, standards, and reporting guidance such as the FFIEC IT Examination Handbook.
- Statutory Audit is a legally required external audit conducted annually to meet a specific set of requirements by the government.
- It relies on the internal audit reports, verification of financial information, documents and related stock validations.
The company here the auditors who provide the auditing report and submit those reports annually or semiannually to the law or the concerned municipal law authority. This statutory auditing finally does the cross checking of the financial reports which are provided by the companies.
They do cross checking by gathering the transaction information from the company’s bank and also from other various sources. Generally, an audit is performed by a qualified accounting firm and is an assessment of an institution or company’s financial situation.
What is statutory audit and internal audit?
A statutory audit is an examination of an entity’s financial records in accordance with the requirements of a government agency. A number of organizations must undergo statutory audits, including the following: Banks. Brokerage firms.
Features of Statutory Audit
Moreover, they are also instructed to make the audited statement and report available to the common public. The purpose behind this audit is to check that all the spending is genuine, backed with proper sanction and approval. This makes the local government accountable for the appropriation of money. At the same time, it is also cross-checked that the disbursed amount at the federal or state level reaches the lower level and taxpayers’ money is not misappropriated. Also, the requirements for statutory audits do change and businesses should check the latest requirements from the HM Revenues & Customs () to make sure they are compliant.
Firms that are subject to audits include public companies, banks, brokerage and investment firms, and insurance companies. Businesses must meet a certain size and employee base—usually under 50 employees—to be exempt from an audit. While statutory audits are primarily concerned with financial activities, non-statutory audits are not limited to financial reporting.
The matters which the banks want the auditors to check is been prescribed by RBI. The auditing sector has been under scrutiny recently, with the government calling for reform following the collapse of high-profile firms whose audits have been called into question. Clearly it’s vital that auditors recognise and report on any issues that emerge from the auditing process, so that any problems in the business can be addressed. Here at Perrys, we work with clients to provide effective and timely audits that meet and exceed all statutory obligations. State law has given instructions to all the municipalities that they should submit their annual accounts duly audited by an auditor.
Statutory audit plays a major role in efficiently managing the operations of the company. Internationally active companies likely have subsidiaries that undergo annual statutory audits. What many companies don’t understand is what that statutory audit really is. A statutory audit is typically performed using auditing and accounting standards prescribed by the local government.
AccountingTools
The term statutory audit refers to the review or the record of the company of the government organization which is required by the law or the municipal authority of any particular region. This is done to monitor the performance of the firm or the government organization.
The authority examines all the financial transactions and account balances which contributes in making the final report by the statutory auditing information. They show how the tax collection is spent and on what things they have invested along with the amount of the investment done on each project or program. The purpose of the statutory audit is to Auditor has to give his view independently without being influenced in any manner. He will check the financial records and will give his opinion thereon in the audit report. Stakeholders other than shareholders also get benefited from this audit as they can take their call based on the accounts as they are audited and authentic.