As the name suggests, statutory audit is that audit that has been made compulsory by the law. A Professional Statutory Audit
is mainly conducted to determine whether an organization is providing a
fair and accurate representation of its financial position by examining
information such as bank balances, bookkeeping records and financial
transactions.
Statute
audit has been made compulsory by the Companies ACE for several
companies to protect and safeguard the interests of the shareholders of
the company. In order to ensure that the accounts prepared by the
directors of the company reflect a fair view of the financial position
of the company, it is necessary to check or audit those accounts.
This
audit is conducted in accordance with the provisions of any Act or
Statute as laid down by the Government. It may be both financial audit
and cost audit. Such audit of the accounts of the Government departments
and statutory bodies is conducted by the representative of the
Comptroller and Auditor General of India.
Statutory audit has been prescribed for the following:
- Companies registered under the Companies Act.
- Government companies
- Corporations established by Parliament or State Legislatures
- Banking companies governed by the Banking Regulation Act, 1949
- Electricity supply companies governed by the Electricity Supply Act 1948
- Co-operative Societies registered under Co-operative Societies Act
- Societies registered under the Societies Registered Act, 1860
- Public and other chat liable trust registered under the Trusts Act, 1882
Salient Features of Statutory Audit
- Statutory audit has been made compulsory by law.
- The law determines its scope which cannot be restricted. However, to extend its scope, a separate agreement is required.
- The qualifications for a statutory auditor has been prescribed by The Companies Act, 1956, which states that he must be Characterized Accountant as per the Chartered Accountants Act, 1949.
- The rights, duties and liabilities of the statutory auditor are all laid down by the law.
- A statutory audit is of independent nature and is required to submit his report to the shareholders only.
Statutory audit Vs Internal audit:
An
internal audit is conducted by a permanent staff of the same company.
He detects faults in financial systems, procedure and looks for
improvement. However, statutory audit involves checking books of
accounts as per the law and company act. There are more differences
between the two, as explained below:
- Appointment and removal
While
an internal auditor is appointed by the company management, a statutory
auditor is appointed by the shareholders or as per suggestions and
decisions at Annual General Meeting. Same rules follow for removal from
the post too.
- Legal requirement
Statutory
audit is the legal requirement, while internal audit is the requirement
of the management without any legal obligation.
- Qualification
There are specified qualifications for statutory auditor, while that of internal auditor isn’t specified by law.
- Conducting of audit
The final audit is conducted after the final account has been prepared, unlike that in internal audit.
- Scope of work
Scope of statutory audit is limited while that of internal audit is vague.
- Remuneration
The
remuneration for statutory auditor is fixed by the shareholders, while
that of internal auditor is fixed by the management that appoints him.
- Report
There
is no need for report in case of internal auditors, while statutory
auditors are must to present reports after completing their work.
Professional statutory audit, in a nutshell, can be described as above.
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