Distinguish between Statutory Audit and Non-Statutory Audit

Examples of statutory audits are the audits of companies, banks, insurance, charitable trusts, corporate bodies and co-operative societies. Examples of non-statutory audits are the audits of partnership firms and individual proprietary concerns. The cost auditor is independent of the company management both ‘in fact and mental attitude’. • Internal auditors are answerable to the management whereas statutory auditors are responsible to the shareholders.

Audit and Assurance are processes used for the evaluation of the financial record of the company. An Internal Audit is a form of control, whose aim is to measure and appraise the effectiveness of other types of control. It involves the verification of business operations by the staff specially appointed for the purpose.

Unlike internal auditors, external auditors perform the bulk of their work at the end of the year, looking backwards to verify that an organization’s financial records correctly reflect the events of the past. However, that exclusive year-end focus is changing. Some audit firms are switching to a continuous focus, with several mini-audits performed throughout the year. Both internal and external auditors help companies ensure that their financial reporting agrees with accounting principles, that internal controls are working correctly, and that the company is in compliance with relevant laws and regulations.

An overview of the difference between internal audit and statutory audit

It cannot embrace its activities in other products of the industry for which orders have not been issued. (b) In case of an audit firm being engaged to perform this function, such firm’s activities arc also determined as per terms of reference. The function aims at ensuring that the systems of cost and financial account­ing are efficient so that the information presented to the management through­out the period is accurate and discloses material facts.

Internal Auditors are company employees which is hired by the company, meanwhile the External Auditors work for an outside audit firm and appointed by a shareholder vote. Internal Auditors help to design the company’s organising systems and help develop specific risk management policies. They also ensure that all policies implemented for risk management are operating effectively.

The difference between internal and external audits

External auditors can suggest changes but are not allowed to implement those changes as that would impair their independence. Internal auditors also ensure that corporate governance is functioning correctly. They may also be called upon to review the budgeting process for special projects, or to review internal processes. Internal auditors also ensure that a company is ready for an external audit. One way to point out a difference between internal audit and statutory audit is the compulsion of preparing and submission of audit report. The law does not make it mandatory for an internal auditor to prepare and present a detailed audit report to the management of the company on completion of the audit process.

Internal audit is a discretionary function within an organization, while external audit may be mandatory. Public companies are required by statute to undergo audits on an annual basis. Lenders and other stakeholders may require audited financial statements as a condition of ongoing financial support. When the auditors have completed their work, they provide a report to management and other stakeholders. The content and format of these external audit reports is specified by the auditing standards. At an exit conference with management, the auditors may discuss the deficiencies in a company’s internal controls and may also provide management with suggestions for improving the business.

• There is no way internal management can change the scope of statutory audit as is the case with internal audit where the mutual consent of the management and the auditors is enough to decide the scope of the audit exercise.
• On the other hand, management can withdraw internal listeners at any time.
• Internal auditors also ensure that a company is ready for an external audit.
• Statutory audit is authorised and governed by law or a statute; whereas the audit got done voluntarily and without any legal or statutory force is non-statutory.

So, Internal Audit is a significant tool of management, which authenticates the accuracy of the accounting records on a regular basis. It reports to the management about the effectiveness of the internal check system as well as other kinds of control, implemented in the concern. The auditing process of the two types of the audit is almost same and that is why people get confused between these two. However, there is a fine line of difference between internal audit and external audit. Although the internal auditor is inde­pendent of all-other departments of the organisation, he has to perform his tasks as per the desire of the company’s top management.

WHAT ARE INTERNAL AUDITORS LOOKING FOR

This certification is required by certain investors and lenders, and for all publicly-held businesses. The basic difference between internal check and internal audit is that internal check is a routine checking procedure, which involves cross-checking of every aspect of the work performed, at the time when it is performed, and recording the same. On the contrary, in internal audit, each and every component of the work is examined, by an independent staff, specially recruited for the purpose. Internal Audit and External Audit are not opposed to each other. Instead, they complement each other. External Auditor may use the work of the internal auditor if he thinks fit, but it does not reduce the responsibility of the external auditor.

The relevant statute or law determines the scope of work. If the report is modified, the auditor has to give reasons for the same. The primary object of this function is to aid the company management. Generally, various items of this audit work are sub-divided ‘as per operating functions and lines of management re­sponsibility’. FloQast’s suite of easy-to-use and quick-to-deploy solutions enhance the way accounting teams already work.

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While the scope of an audit is determined by the purpose, external auditors design their audit work programs according to their assessment of risk within the organization. The purpose of external audit is to provide assurance to investors, lenders, and other stakeholders that a company’s issued financial statements present the organization’s results in a materially correct and fair manner. In the U.K., this is known as presenting a “true and fair view.” This assurance is provided by verifying that a company is reporting its financial results in accordance with the relevant accounting standards.

Therefore, the work is divided into different parts and each part is assigned to a different employee and in this way, the work of one employee is subject to the perusal of another employee. The responsibilities assigned to a cost auditor arc not subject to alterations till the provisions in the Statute are amended. The work of audit under the system is performed by professionally qualified and experienced Cost Accountants who are not the employees of the company. Audit discloses any sort of misuse of the fund and any dishonest business activity, misrepresentation of financial statements, etc.

Key Differences between Internal and External Audit You Should Know

Examination, review and appraisal of the company’s activities can be made con­tinuously throughout the year under the system. (a) The work of audit under the system is mainly performed by the employ­ees, i.e. internal staff of the company. Learn how to optimize existing processes, collaborate efficiently, and provide more value to your organization. However, Internal Auditor can be employee of the company and belongs to the audit department of the company. The auditor need not possess any academic or professional qualifications. The academic or professional qualification is prescribed for the auditor.

• Their audit reports are shared with the senior management of the area of their examination.
• It involves the verification of business operations by the staff specially appointed for the purpose.
• Audit alludes to a process of independent checking of financial records of an organization, so as to give an opinion on the financial statement.
• The auditing process of the two types of the audit is almost same and that is why people get confused between these two.
• External auditors can suggest changes but are not allowed to implement those changes as that would impair their independence.
• The government has laid down various laws in case statutory audit is not performed.

The audit checks the accuracy of financial reports. Auditing includes making sure that financial records are fairly presented, accurate, and it also checks whether financial reports are as per accounting standard and accounting principle. Audit majorly includes Internal and External Audit which is conducted by internal auditors and external auditors, who are independent auditors. The main objective of statutory audit is to give a fair and impartial assessment of the financial performance of the organization while at the same time try to spot any discrepancies and frauds. Internal audit also tries to detect any anomalies and errors that may have crept in the financial statements.

The system does not bind the company with any obligation to rectify or to take action on deficiencies pointed out in the report. Though MAOCARO, 1988 recom­mends for such audit system, it is not governed by any statute. The extent of work to be undertaken is determined by the management of the company. (b) The work can be done by any person having training and skill on the sub­ject and no academic or professional qualification is prescribed.

Auditors assess the risk of material misstatement in a company’s financial reports. Without a system of internal controls or an audit system, a company would not be able to create reliable financial reports for internal or external purposes. Thus, it would not be able to determine how to allocate its resources and would be unable to know which of its segments or product lines are profitable and which are not.

Difference between Internal Audit and Statutory Cost Audit

This statutory audit is carried out under the provisions of the Companies Act 1956 (to give opinions under section 227 of the Act). This statutory audit is a tool to safeguard the interests of the shareholders of the company to ensure that that the organization is performing satisfactorily financially. However, there are companies that get performed an internal audit also to ensure they are following the rules and regulations of accounting and to verify the statements prepared by accountants.

The assignment of responsibilities to an internal auditor can be altered by the management to suit purposes. The internal auditor is responsible only to the company. It is one distinguish between internal audit and statutory audit of the major segment of the internal control system, enforced in the firm whereby no one person is authorized to undertake and enter every facet of the financial transaction.