Definition:

A statutory audit is an audit required by law to be performed on certain entities by independent auditors. It is typically conducted for companies, corporations, and other organizations that are required to meet certain financial reporting standards or regulations.

Purpose:

• To ensure compliance with applicable laws, regulations, and standards.
• To provide an independent opinion on the reliability of the company’s financial statements.
• To provide assurance that the company’s financial statements are accurate, complete, and fairly presented.
• To hold companies accountable for their financial practices.

Requirements:

Statutory audits are required by law in many countries, including the United States, the United Kingdom, and Australia. The specific requirements vary by country, but generally include:

• Publicly traded companies: Required to have their financial statements audited by independent auditors annually.
• Large companies: May be required to have their financial statements audited regardless of their public status.
• Financial institutions: May be required to have their financial statements audited by independent auditors on a regular basis.
• Government agencies: May be required to have their financial statements audited by external auditors.

Types of Statutory Audits:

• Financial statement audits: Focus on the accuracy and fairness of the company’s financial statements.
• Compliance audits: Assess compliance with specific laws and regulations.
• Internal control audits: Evaluate the effectiveness of the company’s internal controls over financial reporting.
• Operational audits: Review the company’s operations to identify potential areas for improvement.

Process:

The statutory audit process typically involves the following steps:

1. Planning: Auditors gather information about the company, its industry, and its financial reporting requirements.
2. Performance: Auditors examine documents, records, and transactions to assess compliance and gather audit evidence.
3. Analysis: Auditors analyze the audit evidence to identify any potential issues or concerns.
4. Conclusion: Auditors draw conclusions about the company’s financial health and compliance with applicable regulations.
5. Reporting: Auditors issue a report containing their findings, opinions, and recommendations.

Additional Notes:

• Statutory audits are typically conducted by independent auditors, not the company’s internal auditors.
• The auditor’s report is typically made public, but the details of the audit may be confidential.
• Statutory audits are an important part of the financial reporting process and play a key role in ensuring financial transparency and accountability.