There are several types of audits. However, two of the most common are the internal audit and the statutory audit. While extremely common, many people don’t fully understand what a statutory audit is, how it is conducted, and why it is conducted. This article will offer a comprehensive description of the statutory audit and how it relates to business assurance.
A statutory audit is a legally required audit to determine whether a company is accurately reporting their finances. The term “statutory” simply means that this particular type of audit demanded due to a statute, which is a law or regulation. Unlike with internal audits, statutory audits are conducted externally. This means that the auditors are oftentimes hired by company shareholders and are required to objectively inspect company records and internal controls.
These external auditors are independent contractors, rather than employees of the company. The scope of their work is determined by law, or statute, rather than by the company management, which is oftentimes the case in internal audits.
The main purpose of a "legal" audit is the same as any type of audit: to ensure that the company is accurately reporting their finances. However, there is a link between the statutory audit and business assurance. Business assurance is financial coverage that is taken out on someone who runs the business to ensure the business doesn’t suffer financially if that person were to die or become disabled. By complying with legal audit requirements, businesses are able to have a comprehensive and objective view of their finances, which can help them make informed decisions about business assurance.
The statutory audit is a crucial process because it holds businesses accountable. This type of audit also plays a special role in business assurance, which allows businesses to better protect their assets and employees.
TAT provides some useful resources for small to medium sized businesses to keep your business compliant and organised.