A statutory audit is a legally required review of the accuracy of a company's financial statements and records. Its purpose is to ensure compliance with statutory and regulatory requirements, providing stakeholders like shareholders, regulators, and the public with an unbiased assessment of the financial health and transparency of the business. The audit is typically conducted by an external auditor who examines financial reports, transactions, and internal controls to verify their accuracy and adherence to applicable laws.
A statutory audit serves as an important tool for ensuring corporate accountability and financial integrity. Mandated by law in many jurisdictions, it applies to certain types of organizations, such as public companies, large private firms, and certain non-profits, depending on thresholds like revenue, size, or industry regulations.
The primary goals of a statutory audit include:
- Compliance: Verifying that the company adheres to financial reporting standards and regulations (such as GAAP or IFRS).
- Accuracy: Confirming that the financial statements provide a true and fair view of the company’s financial position.
- Fraud Prevention: Detecting and preventing fraudulent activities or financial misrepresentation within the organization.
- Transparency: Offering clarity to shareholders, regulators, creditors, and the public about the company’s financial performance and risk exposure.
- Investor Confidence: Reinforcing trust in the financial information provided by the company, which is critical for investor decisions and market stability.
Statutory audits are performed annually and result in an auditor’s report, where auditors issue opinions on whether the financial statements are free from material misstatements. The audit process often includes examining financial records, internal control systems, and risk management procedures, and conducting tests to ensure that the statements reflect the organization’s true financial situation.