Benefits of Statutory Audit

        

No matter your company type, there are many benefits of staturoty audit. A statutory audit provides a clear understanding of the company’s financial books. The audit is a legal requirement and should be conducted by a skilled auditor. The auditor ensures the financial records and documents are accurate and aligned with the law.

All companies, big or small, and their annual turnover are subject to statutory Audit. It provides insights into whether the company’s financial records are error-free. The company must provide its bank statements, financial transactions, and auditing records. Let us discuss statutory audit, its procedure, and its benefits in detail.

Introduction to Statutory Audit

A statutory audit is a legally required analysis of a company’s financial records to ensure the company complies with the laws. The meaning of statutory is that the law mandates the audit. The auditor examines the company’s records, books, management, and systems to confirm their fairness and check if anything is missing. After that, the auditor compiles reports, including errors or mismanagement, and provides solutions.

The statutory audit report is made by an independent auditor appointed by the company. An independent auditor’s role is to ensure there is no mishap during the documentation. If some kind of error is detected in the audit, it will indicate embezzlement in the company’s funds. It will also show some sort of misconduct in the financial records.

Benefits of Statutory Audit

There are many benefits of statutory Audit, such as,

• Offers Reliability. Statutory audits increase the reliability of financial documents by verifying the statements provided by the company.
• Guarantee Compliance. Statutory audit ensures that the company complies with the law.
• Improves Business Planning and Budgeting. Statutory Audits help keep financial records in order and help the company plan and make a budget for the future based on its financial statements and profit loss records.
• Helps Prevent Fraud. The Audit helps a company keep a transparent record of its transactions, ensuring no fraud, errors, or misrepresentations. 
• Accuracy of Financial Statements. Statutory audit reports are compiled by professional auditors who carefully examine every little detail of financial records provided by the company, making sure they are accurate and fair.
• Accessibility for Loans. A clean and transparent financial document helps the company to get loans and credit from the banks. It also builds trust among investors, which greatly benefits firms.
• Helps identify Risks. By assessing the company’s balance sheet and internal records, auditors help identify risks and support the management to improve. 
• Increases Management’s Performance. A statutory audit helps improve the performance of a company’s management.

Who is Subject to Statutory Audit?

No matter the type of business, all firms, whether private or limited, must conduct statutory audits.  These entities are Government organizations, Banks, brokerage firms, and insurance companies. A statute audit is a rule endorsed by a court of law that demands the financial records of the company to be reviewed. The state designs different laws related to statutory audits for other firms. 

Purpose of Statutory Audit

A statutory audit assesses the documents provided by the company and tests transactions. Auditors evaluate the data to spot discrepancies and determine compliance with the laws. The results are compiled into a report with recommendations that help the management to take necessary measures. It also helps to identify any kind of fraud and errors and help prevent them. 

Statutory Audit vs External Audit

Some main differences between a statutory and an external audit are given below. 

Process of Statutory Audit

The statutory audit checklist has the following steps,

Knowing Work Environment

The main step for auditors in compiling a statutory audit report is to know the company’s work environment. It includes assessing guidelines and regulations to understand their moral values and integrity. The auditors can collect this information with the help of survey forms, checklists, and questionnaires. 

Evaluating Administration

The auditors collect information about the company’s administration and controls by asking workers, external auditors, previous audit reports, trade magazines, and official company documents.

Checking Account Balances

By testing the company’s account balance, auditors verify that the financial records are transparent and fair. It guarantees that the company complies with governmental standards, market practices, and other statutory laws.

Checking Account Details

Another important step in the statutory audit checklist is testing the company’s account details. It includes documents related to banks, insurance companies, and investment funds to ensure these align with the statutory requirements.

Testing Authority

In this step, the auditor evaluates the rules of conduct of the individual preparing the company’s regulatory audit reports. The aim is to look for any kind of error or fraud in the working mechanism and how to prevent them. The auditor ensures the operating mechanism meets the regulatory standards and market practices. They also ensure that the system is understood by all the workers and executed properly.

Categories of Statutory Audit

There are two main types of statutory audits, which are discussed below.

Company Audit

In a company audit, the company’s profit and loss statement, balance sheet, and funds flow statements are audited by the auditor appointed by the firm.

Tax Audit

A tax audit entails a complete review of the tax return by the Federal Tax Authority (FTA) in UAE. Through this process, it is verified that the documented profit and loss statement is accurate. 

Key Points Regarding Auditors

Several key points must be noted regarding the auditors, such as,

• It is the right of a statutory auditor to examine all the firm’s financial records, books, and documents, allowing unrestricted access.
• The auditor needs to compile an auditor’s report. This report must be fair and mention that the financial records presented by the company accurately represent its financial condition.
• The report should include the reason for showing any mishaps or errors. 
• Auditors must report errors and mishaps to government authorities during the audit process. 
• The auditor must follow the audit standards set by the regulatory authorities while making statutory audit reports. 

Documents Required for Statutory Audit

For a statutory audit, the following documents are required by the auditors,

• Basic details of the company, such as ownership and legal profile.
• List of description schedule format of assets such as property, machinery, etc.
• Documents of the company’s cash flow include money coming in and going out.
• Cash flow of the business.
• Business contracts such as lease agreements and other business deals.
• Details of inventory items
• Company’s payables and receivables
• Documents of items purchased or sold.
• Overhead costs of the company include employees’ salaries, electricity, and other bills.
• Documents of tax payments and other legal requirements.

Bottom Line

In short, there are many benefits of a statutory audit for a company, such as offering credibility to the company’s financial records, ensuring that the firm is following regulatory laws, and helping prevent fraud and errors. With the help of statutory Audit, management issues are identified, and solutions are provided. 

Understanding the statutory audit process and hiring a skilled auditor is necessary to make the process successful. You can contact Al-Riyady for assistance and advice regarding the audit process. Our other services are accounting, Business Plan & Feasibility Studies, tax advisory services, FTA Approved Accounting and more.