The objective of a statutory audit is to provide assurance that an organization’s financial statements are true and fair. Statutory audits provide legally required assurance of financial statements to external stakeholders. Internal audits give management invaluable insights into strengthening governance, risk management, and internal controls. Together, competent statutory and internal auditing functions reinforce trust, transparency, and operational excellence.

On the other hand, statutory audit reports are thorough records that are provided to shareholders and regulatory bodies, offering an open picture of the company’s financial situation and compliance level. In India, statutory audits are mandatory for all companies under the Companies Act 2013. These audits are performed by independent Chartered Accountants to verify financial statements and ensure compliance with accounting standards and company law. In summary, statutory audits validate financial statements for accuracy and compliance, while internal audits analyze diverse operations and systems to enhance productivity and risk management.

Audits are crucial for several reasons:

The scope of a statutory audit is determined by the regulatory body or government agency that requires the audit and typically covers the financial statements and notes to the financial statements. While statutory audits focus narrowly on verifying external financial statements, internal audits have a broader organizational improvement mandate aligned with strategic objectives. By regularly evaluating operations, internal audits help organizations continually enhance processes and decision making. In summary, a statutory audit is an external compliance exercise, while an internal audit provides internal assurance to an organization’s management.

The Relationship Between the Statutory Audit and Internal Auditors

By adhering to statutory audit requirements, businesses contribute to the enhancement of corporate governance, fostering trust among shareholders, investors, and other stakeholders. The statutory audits kept us compliant with laws, while the non-statutory audits helped us improve our operations and strategy. First of all, it can help detect the reliability of the financial statements of a company. By performing a statutory audit, companies can increase the authenticity and credibility of their financial statements.

The main difference between internal audit and statutory audit is conducted by an internal auditor who is an employee of the company and reports to the management. The purpose of an internal audit is to provide independent assurance to a company’s management that its operations are effective, efficient, and comply with internal policies and procedures. The scope of an internal audit is determined by the company’s management and is difference between statutory audit and internal audit focused on assessing the effectiveness of the company’s internal controls, risk management, and governance processes. The internal auditor provides management with recommendations for improving the company’s operations and internal controls.

Understanding the Differences between Internal Audit and Statutory Audit

The government of the US and the UK require all public-listed companies to perform an audit. Usually, these statutory audits come with instructions as to what the government needs from the audit. In case governments don’t mention their requirements, the auditing standards have instructions as to how auditors should carry out these audits.

The process of submitting my legal request was straightforward, and I appreciated the option to provide relevant documents electronically, saving me the hassle of scanning or mailing physical copies. An audit trail is a record of all transactions and activities that have been performed in an information system. It is used to track changes, identify errors, and ensure the integrity of the system.

Statutory auditors are appointed by the shareholders during the annual general meeting, ensuring their independence from the management of the company. In contrast, internal auditors are appointed by the management and must maintain objectivity but are inherently part of the organization. As an aspiring auditor or finance professional, it’s essential to understand both internal and statutory audits since they form the foundation of audit practices in organizations. Gaining practical exposure to both will enhance your skills and broaden your career opportunities in the field of finance and auditing.

In the absence of an audit report, stakeholders may not trust the financial statements. An internal audit is conducted by an organization’s internal audit department or a consultant hired by the organization, while an external audit is conducted by an independent third-party auditor. ObjectivesInternal audits’ main goals are to evaluate and strengthen internal procedures, pinpoint areas for development, and boost operational efficacy.

1. This type of audit is mandated by law for most public companies and certain private entities, depending on local regulations.
2. The Statutory Audit provides assurance to the shareholders and other stakeholders of the listed company that the financial statements are prepared in accordance with applicable laws, regulations, and accounting standards.
3. While statutory audits ensure legal compliance and instill stakeholder confidence, internal audits provide a strategic tool for enhancing operational efficiency, risk management, and continuous improvement.
4. Internal audits and statutory audits, the two main forms of audits, have different functions but are equally important to an organization’s ability to run smoothly.
5. It is conducted by an external, independent auditor to review financial documents and ensure they fairly represent the company’s financial position.

So while a statutory audit focuses narrowly on financial reporting, internal audits examine a diverse set of areas with the aim of optimizing organizational effectiveness and productivity. The scope is dictated by the specific needs of the business rather than legal requirements. A statutory audit is a legally required review of an organization’s financial statements and accounting records. The purpose is to determine whether the financial statements are presented fairly and comply with generally accepted accounting principles (GAAP) as well as relevant laws and regulations.