Statutory Audit

Reviewed by Bhavana | Updated on Sep 28, 2020

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.

Related Terms

  • Gross Working Capital

    Gross working capital refers to the total current assets of a company.   Read more


  • Revaluation Reserve

    Revaluation fund is the accounting term utilised when a business establishes a line item on the balance sheet for the purpose of maintaining a contingency account connected to other assets.   Read more


  • Capital Account

    The capital means the assets and cash in a business.   Read more


  • Operating Revenue

    Operating revenue refers to the revenue generated by a company from its primary activities.   Read more


  • Escalator Clause

    An escalator clause is also known as an escalation clause, where the provision allows for an automatic increase in the wages or prices.   Read more


  • Agency Problem

    The agency problem is a scenario of a conflict of interest which is inherent in all relations wherein one party is anticipated to operate in the best interests of another party.   Read more


Recent Terms

  • Amortisation

    Amortisation is an accounting strategy used to regularly reduce a loan's book value or an intangible asset's book value over a given period of time.   Read more


  • Rationalisation

    The reorganisation of a firm with the view of enhancing the efficiency of the operation is referred to as the rationalisation.   Read more


  • Profit Centre

    A profit centre refers to a branch, unit, or division of a company which directly adds or which normally adds to the bottom-line or profits of the company as a whole.   Read more


  • Authorised Share Capital

    Authorised share capital is the number of stock units (shares) that a company may issue, as set out in its association memorandum or incorporation papers.   Read more