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Statutory Audit

Reviewed by Bhavana | Updated on Oct 05, 2020

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Meaning of a Statutory Audit

A statutory audit is a legally required check of the accuracy of the financial statements and records of a company or government. A statutory audit is intended to determine if an organisation delivers an honest and accurate representation of its financial position by evaluating information, such as bank balances, financial transactions, and accounting records.

How Does a Statutory Audit Function?

The term statutory signifies that statutory auditing is necessary. A statute is a regulation or law enacted by the associated government of the organisation's legislative branch. Multilevel laws may be passed by the Centre or State. In a company, a regulation also applies to any law set by the management team or board of directors of the organisation.

An audit is an examination of records held by an agency, company, government department, or individual. This usually involves analysing different financial records or other areas. During a financial audit, reports of a company with respect to revenue or benefits, returns on investment, expenditures, and other things can be included in the audit process. Often, a variety of these elements are used when determining a cumulative ratio.

The objective of a financial audit is often to assess whether funds have been properly handled and that all records and filings required are accurate. Undergoing a statutory audit is not an implicit indication of misconduct. Instead, it is also a formality intended to help discourage crimes, such as misappropriating funds by ensuring a professional third party routinely scrutinises various documents. The same applies to other audit forms too.

An Important Note

Not all businesses are obliged to undergo mandatory audits. Government corporations, banks, brokerage and investment houses, and insurance companies are subject to audits. Those charities may also conduct statutory audits. Commonly, small companies are excluded. To be exempted from an audit, businesses must reach a minimum size and employee base—usually under 50 employees.

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