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Statutory Audit

A statutory audit is a legally required examination of the financial statements and accounting records of an entity by an independent external auditor. The purpose of a statutory audit is to provide assurance to stakeholders, such as shareholders, creditors, and regulatory authorities, that the financial statements present a true and fair view of the entity’s financial position and performance in accordance with applicable accounting standards and regulatory requirements. Here are key features and aspects of a statutory audit:

Legal Requirement:

Legal Requirement:

  • Statutory audits are mandated by law or regulatory authorities. In many jurisdictions, companies, especially public companies, are required to undergo an annual statutory audit to ensure transparency and accountability.
Independence of the Auditor

Independence of the Auditor:

  • The external auditor conducting the statutory audit must be independent and impartial. Independence is crucial to maintain the credibility and integrity of the audit process
Compliance with Accounting Standards

Compliance with Accounting Standards:

  • The audit ensures that the financial statements are prepared in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), depending on the applicable accounting framework.
Verification of Financial Statements

Verification of Financial Statements:

  • The auditor examines the financial statements, including the balance sheet, income statement, and cash flow statement, to verify the accuracy, completeness, and fairness of the information presented.
Audit Procedures

Audit Procedures:

  • Audit procedures involve a combination of substantive tests and analytical procedures to obtain audit evidence. This may include confirming account balances with third parties, inspecting supporting documents, and assessing internal controls.
Materiality and Risk Assessment

Materiality and Risk Assessment:

  • Auditors consider materiality and assess the risk of material misstatement in financial statements. This involves understanding the entity’s internal controls and evaluating the risk of fraud or errors.
Audit Report

Audit Report:

  • The auditor issues an audit report at the conclusion of the audit. The report provides an opinion on whether the financial statements are presented fairly in all material respects and in accordance with the relevant accounting standards.
Management Representations

Management Representations:

  • The auditor typically obtains written representations from management, confirming their responsibility for the financial statements, the completeness of information provided, and any other matters relevant to the audit.
Communication with Shareholders

Communication with Shareholders:

The audit report is communicated to the shareholders, board of directors, and other stakeholders. It is an essential document for shareholders and investors to assess the financial health and performance of the company.

Regulatory Compliance

Regulatory Compliance:

  • In addition to financial reporting, the statutory audit may also involve assessing compliance with other regulatory requirements, such as tax regulations, corporate laws, and industry-specific regulations.

Statutory audits play a crucial role in promoting transparency, accountability, and trust in financial reporting. They are an integral part of the corporate governance framework and contribute to the stability of financial markets. The audit process is governed by professional standards and regulations established by auditing bodies and regulatory authorities.