Internal Audit Vs Statutory Audit

Let's understand the difference of Internal audit and Statutory Audit

What is an Internal Audit?

An internal audit can be carried out by the company's internal team or by contracting an outside consultant to carry out the review procedure. Its goal is to make sure that the organization's governance, risk management, and internal controls are operating efficiently. Management can increase operational efficiencies and pinpoint areas for improvement with the help of internal audits.

Key Features of Internal Audits

- Internal audits are conducted all year long.

- Internal auditing's purview covers every department within the business. It may involve matters pertaining to the company's finances, operations, compliance, or other aspects.

- Internal audits can be performed by anyone; with or without any qualification.

- An internal team or outside consultants carry out internal audits; they are accountable to the audit committee or management.

- According to the Companies Act of 2013, they are only necessary for specific companies and are not mandatory for all companies.

Internal auditing's scope can be tailored to an organization's unique requirements. It may concentrate on a single process (such as procure-to-pay or order-to-cash) or several processes, productivity, fraud detection, or the application of policies.

What is a Statutory Audit?

An audit of a business's financial statements is known as a statutory audit. Statutory Auditor form an opinion on whether the company's financial statements offer an true and fair view is the primary goal of a statutory audit. All Indian companies are required to conduct mandatory audits under the corporations Act of 2013.

Statutory audits must be conducted by a practicing chartered accountant.

Key Features of a Statutory Audit

A statutory auditor must be conducted by a practicing CA.

A statutory audit's main goal is to verify that the financial figures are true and fair, with an emphasis on adherence to the Companies Act's regulations and accounting standards.

- The shareholders receive the report from statutory auditors.

Key Differences Between Internal and Statutory Audits

1. Purpose

Internal Audit: The main goal of internal auditing is to enhance an organization's internal business processes by detecting risks, control flaws, inefficiencies, and compliance gaps, and then putting the appropriate controls in place. This guarantees that the business's operations will function smoothly and with the least amount of risk.

Statutory Audit: The primary purpose of a statutory audit is to offer an Independent assessment of the accuracy and conformance of a business's financial statements to the financial reporting framework. Its main goal is to give stakeholders, including shareholders, an reasonable level of comfort over the company's financial stability.

2. Scope

The internal audit's scope is broad and may cover, among other things, operational procedures, the risk management system, and adherence to the company's internal policies in addition to financial reporting. Internal auditors can evaluate anything from the security of IT systems to HR procedures.

The scope of a statutory audit is limited to the company's accounts and financial records. In accordance with the financial reporting system and legal requirements..

3. Legal Requirement

Internal Audit: Although not necessarily needed by law for all companies, internal audits may be required of major corporations or specific industries as outlined by the corporations Act of 2013. For instance, financial institutions and listed businesses must comply. The majority of businesses voluntarily carry out internal audits in order to enhance business procedures and reduce risks.

Statutory Audit: mandated by law for all businesses under the Companies Act of 2013. To fulfill legal and financial reporting requirements, it must be carried out once a year.

4. Frequency

- Internal Audit: Conducted throughout the year depending on organizational requirements. The frequency can vary, typically quarterly or even monthly.

- Statutory Audit: Majorly Conducted once a year.

5. Reporting Model

- Internal Audit Reports: The board of directors or the audit committee receives reports from internal auditors. They offer updates on operational and process enhancements and offer suggestions in light of their research.

- Statutory Audit: Rather than management, statutory auditors answer to the shareholders. They are responsible for forming an assessment regarding the company's financial health. Statutory auditors must be independent since they answer directly to shareholders.

To understand through video what's different between internal and statutory audits, check out this Internal Auditor Vs Statutory Auditor | Where to Join Internal Audit or statutory Audit 

FAQs

1. Is an internal audit mandatory?

Certain types of businesses, especially listed businesses and financial institutions as defined by the Companies Act, are required to conduct internal audits. Nonetheless, the majority of businesses decide to carry out internal audits in order to enhance performance and lower risk.

2. Who undertakes a statutory audit?

An independent chartered accountant designated for this position performs a statutory audit. The auditor is in charge of making sure that the financial statements of the business adhere to accounting and legal requirements called as financial reporting framework.

Conclusion

The operational and financial integrity of a business depends on both statutory and internal audits. Organizations can detect risks, improve internal processes, and increase management effectiveness by conducting internal audits. Statutory audits ensures adherence to legal obligations, such as the Companies Act of 2013, and offer an independent opinion of the company's financial health.

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