Statutory Audit Meaning Examples What Is Statutory Audit

Statutory Audit Meaning

The purpose of the statutory audit is that the auditor gives his view independently without being influenced in any manner. He will check the financial records and provide opinions in the audit report. It helps the stakeholders to rely onFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more financial statementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more. Stakeholders, other than shareholders, also benefit from this audit. They can take their call based on the accounts as they are audited and authentic.

Example of Statutory Audit

State law has given instructions to all the municipalities that they should submit their annual accounts duly audited by an auditor. Moreover, the instruction includes that audited statements and reports are available to the common public. This audit aims to check that all the spending is genuine and backed with proper sanctions and approval. It makes the local government accountable for the appropriation of money. At the same time, it also cross-checks that the disbursed amount at the federal or state level reaches the lower level and there is no misappropriation of taxpayers’ money. So, the municipalities are liable for the statutory audit.

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Advantages of Statutory Audit

It increases the authenticity and credibility of financial statements as an independent party, i.e., the auditor is verifying the financial statements.It confirms that management has taken due care while delivering their responsibilities.It also states compliance with the non-statutory requirements like corporate governance etc.The auditor also comments on the strength of the organization’s internal control and internal checks among the departments or segments. He also suggests the area where internal controlInternal ControlInternal control in accounting refers to the process by which a company implements various rules, policies, or procedures to ensure the accuracy of accounting and finance information, safeguard the various assets of the business, promote accountability in the business, and prevent the occurrence of frauds in the company.read more is weak and prone to risk. It helps the company mitigate the risk and results in the improvement of the company’s performanceOn producing financial statements audited by an independent auditor, loans are easy, as the audited statements are more reliable and authentic. The financial statement of the small company for whom audit might not be applicable gets more value if audited. With the help of the audited financial statements, it becomes easier for companies to get banking loans and other facilities.

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Disadvantages/Limitations

The cost associated with an audit can be very high. But an audit firm engaged in looking after the day-to-day work, including accounts preparation, etc., will charge a relatively much less amount to conduct the audit compared with the firm not engaged.The employees might get disrupted for performing their regular work to answer the day-to-day query of the auditor or while providing the auditor with any reports or data required of them. It might result in stretching the employees’ work beyond office hours and may sometimes cause distress among the employees.The financial statements include judgemental as well as subjective matters. Judgemental issues may vary with persons. Sometimes personal business is also included.There are inherent limitations of audits like it has to finish in due time, internal control within the organization, limited power of the auditorAuditorAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country’s local operating laws.read more, etc. One has to understand that auditors are watchdogs and not bloodhounds. Their reporting is based on the sample data and not the total data. Moreover, frauds are planned, so it will be more challenging to find.There are many areas in which auditors have no other option than to take representation from management. It is a danger if management itself is involved in fraud. In that case, they will give the manipulated image.The auditor does not assess and review 100 % of transactions. Auditor merely expresses his opinion on the financial statements and data provided to him and, at no point, gives total assurance.An auditor comments on the going concern of the organization, but nowhere assures its future viability. Stakeholders should not vest their money by only seeing that the organization has data audited.

Important Points

Applicability of audit to any organization doesn’t state that it is an inherent sign of doing wrong acts. Instead, it is the way that helps in preventing such activities. E.g., misappropriation of funds by ensuring continuous examination of data may be in the scope of other types of audits.A statutory auditor can ask for the company’s financial books, records, or information. It is his right, and the management cannot deny him the same.After doing the entire verification and gathering information, the auditor is supposed to conclude by writing an audit report based on the various evidence and information on the true and fair view of the financial statements.

Conclusion

A statutory audit is one of the main types legally required to review the accuracy of a company or government’s financial accounts. It is conducted to gather different information so that the auditor can give his opinion on the true and fair view of the company’s financial position on theA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more date.

The statutory audit increases the authenticity and credibility of financial statements as an independent party verifies the company’s financial statements. After verifying and gathering information, the auditor will conclude by writing anAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company’s financial statements.read more audit reportAudit ReportAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company’s financial statements.read more based on the various evidence and information on the financial statements’ true and fair view.