- Internal Audit vs. Statutory Audit: Comparative Table
- Similarities Between Internal Audit And Statutory Audit
- When should you conduct these audits?
- Frequently Asked Questions (FAQs)
While we all know about Internal and Statutory audit, understanding the difference between internal audit and statutory audit is important because they serve different purposes. Internal audit is a form of assurance to the board and management of a company that the company’s processes, systems, operations, and financials are in compliance with the company’s policies and procedures. Statutory audit, on the other hand, is conducted to ensure that the company’s financial statements are true and fair, and comply with the relevant statutes and regulations.
This guide provides an overview of the differences between the two types of audits, including the scope and objectives of each.
Internal Audit vs. Statutory Audit: Comparative Table
|Internal Audit is carried out by people within the Company or even external Chartered Accounts (CAs) or CA firms or other professionals to evaluate the internal controls, processes, management, corporate governance, etc. these audits also provide management with the tools necessary to attain operational efficiency by identifying problems and correcting lapses before they are discovered in an external audit
|Statutory Audit is carried out annually by Practising Chartered Accountants (CAs) or CA Firms who are independent of the Company being audited. A statutory audit is a legally required review of the accuracy of a company’s financial statements and records. The purpose of a statutory audit is to determine whether an organization provides a fair and accurate representation of its financial position
|An Internal Auditor need not necessarily be a Chartered Accountant. It can be conducted by both CAs as well as non-CAs.
|Statutory Audits can be conducted only by Practising Chartered Accountants and CA Firms.
|Internal Auditors are appointed by the management of the Company. Form MGT-14 is to be filed with ROC
|Statutory Auditors appointed by the Shareholders of the Company in its Annual General Meeting. Form ADT-1 is to be filed with ROC.
|Internal Audit is majorly conducted to review the internal controls, risk management, governance, and operations of the Company and to try and prevent or detect errors and frauds.
|Statutory Audit is conducted annually to form an opinion on the financial statements of the Company i.e whether they give an accurate and fair view of the financial position and financial affairs of the Company.
|Reports are submitted to the management of the Company being audited.
|Reports are submitted to the shareholders of the Company being audited.
|Frequency of Audit
|Conducted as per the requirements of the management.
|Conducted annually as per the statute.
|An internal auditor may or may not be independent of the entity being audited.
|A statutory auditor must always be independent.
|Removal of auditor
|Internal auditors can be removed by the management
|Statutory Auditors can be removed by shareholders in an AGM only.
|Internal audit is not a regulatory requirement for all private limited companies. The requirements for internal audits are prescribed in Section 138 of the Companies Act, 2013.
|All Companies registered under the Companies Act are required to get Statutory audits done annually.
Similarities Between Internal Audit And Statutory Audit
Having discussed the differences between internal audit and statutory audit, let’s now take a look at the similarities between the two.
- The primary similarity between internal audit and statutory audit is that they both require an independent area of operation that should, ideally, be free from any sort of managerial interference or organizational control.
- Both internal and statutory audits follow the same procedural path—planning, research, execution, and presentation. These paths may vary slightly from one auditor to another, but they largely stick to the same pattern.
- Be it an internal audit or a statutory audit, both types are dependent on the availability and access of clear, reliable, and accurate data. If an organization offers its resources in a transparent manner, the audit would be fair and just.
- The long-term purpose of internal and statutory audits is to prevent mistakes, maintain clarity, enhance efficiency, and present a precise snapshot of the firm’s financial position.
When should you conduct these audits?
While Statutory Audit is compulsorily required to be conducted annually, as an organization you should choose to conduct an Internal Audit if you want to:
- Analyze the fairness of your firm’s internal controls, processes, and operations
- Compare your actual performance with budgets and estimates
- Evaluate policies, strategies, and compliances
- Devise appropriate measures to meet organizational objectives
- Identify and report errors, frauds, wastage, or embezzlement, if any.
While internal audit helps the management in ensuring operational efficiency, controls, corporate governance etc. are working effectively in their organization , statutory audit ensures that their financial statements give a true and fair view and are compliant with all applicable laws and regulations.
Treelife’s multidisciplinary team has the right domain expertise in the startup ecosystem and can provide you with the necessary insights and guidance to make the right decisions for your business and auditing requirements.
Frequently Asked Questions (FAQs)
1. Can an Internal Auditor and Statutory Auditor be the same?
A statutory auditor of the Company cannot be its internal auditor
2. Can a statutory auditor rely on an internal auditor?
A statutory auditor can use the report of an internal auditor in a meaningful manner to identify key risk areas and key internal controls in place and accordingly plan their statutory audit procedures. The Standards on Auditing applicable in India (SA-610) also prescribes the extent and manner in which a statutory auditor can use the work of an internal auditor.
3. Can the Board of Directors appoint a statutory auditor of the Company?
Only the first statutory auditor of the Company can be appointed by the board of directors within 30 days from the date of incorporation. In the first Annual General Meeting (AGM) of the Company, the shareholders are required to appoint the statutory auditor of the Company and thereafter statutory auditors can only be appointed in the AGM of the Company by shareholders.
4. What is the difference between an internal and external auditor?
An internal auditor is someone who is appointed by the management of the Company and might also be an employee of the Company. An external auditor can never be an employee of the Company and should be independent of the Company/entity they are auditing.
Disclaimer: The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.
Last Updated on: 8th December 2023, 07:29 pm
The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.