An introduction to Internal and Statutory Audit

The remuneration of a statutory auditor is fixed by the shareholders while the remuneration of an internal auditor is fixed by the management. Statutory auditors are appointed by the shareholders of the company while internal auditors are appointed by the management of the company. This act requires every company registered under the Companies Act 2013 to get there accounts audited. Thus an audit conducted for such a companies that is governed by Company law will be known as a statutory audit.

The difference between general and investigative auditing lies in their purpose. General audits are conducted for the overall ascertainment of the position of a company and are mandatory. Investigative auditing is only conducted customarily and for specific purposes. An investigation, unlike an audit, is conducted at the request of a person who might be a part of the organization or the organization itself.

Hence, an audit of an organisation which is legally mandatory under any enactment is known as statutory audit. 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. An internal audit comprises looking at the proficiency of the working standards of the employees and internal parties. They check whether there is compliance between the organization’s set standards and actual processes and efficiency. Auditors should determine that Disclosure of overall relevant information in the financial statements has been made in accordance with statute and accounting standards.

What is Statutory Audit?

The Act also provides for a statutory audit, which checks the compliance of a particular statute applicable to companies and is conducted externally by an external auditor. Such an audit is mandatory for all companies and is instituted by the owners or shareholders of a company to whom he is accountable and reports. The statutory auditors are required to be independent and uninfluenced by the management of the company. The Companies Act gives various powers and duties to an external auditor. Statutory audit is done by the practising chartered accountant whereas internal audit is done by the employee of the company.

It is a distinguish between internal audit and statutory auditally laid down principle by the government and authorities directed towards the company’s major stakeholders. It is a strict regulation by the government to perform statutory audits. It is a deep and careful examination of financial statements in order to spot the minutest errors and fraud activities. A statutory audit is not as some would assume, a search for a proverbial needle in a haystack, but a statutory audit is conducted to comply with set statutes and test financial statements for compliance with the set standards.

The terms audit and investigation differ in scope, method, purpose, and the subject matter they deal with, making them unique concepts or methods of examining data in accountancy. Secretarial audits ensure that all legal and procedural requirements are met so that directors can focus on crucial business issues. A company’s reputation among its stakeholders and regulators should be improved.

The level of accuracy in statutory audit depicts the brand equity of the company. It also aids in attaining transparency within the organization and gaining an edge through internal control. There are many reasons to choose a career in internal audit over statutory audit in India.

The Types of Statutory Audit

Internal audit is not mandatory and it is the choice of the management of the company to get it done by its internal auditors. Management does not want to be red-faced in case of any irregularities when statutory audit is conducted which is why, to keep a check on the operations of the company, internal audit is done. The major difference lies in the scope of activities that both the auditors are involved in. An internal audit performs various duties such as analysis of accounts and different activities of the organization. On the other hand, a statutory audit is only concerned with inspection, spotting errors, and checking the financial reports, accounts, and related documents.

Small organizations generally do not have separate audit department not arrange any outside agency. The internal auditor will head the department and report to General Manager / Chief Accountant / Director. Internal audit is related to the examination of books of accounts and other activities of an organization but statutory audit checks the books of accounts and related evidential documents. So, scope of internal audit is vague but scope of statutory audit is limited. An internal auditor is generally appointed by the management but statutory auditor is appointed by the shareholders or Annual General Meeting.

An investigation has a predetermined purpose and scope and is often conducted by the investigator on behalf of any person who wants certain information about a company. Investigations can be conducted on behalf of any person who is not a part of the organisation yet but is seeking to join the same or is looking to purchase shares. The Companies Act further provides for statutory audits which are conducted with the aim of checking the compliance of a particular company to specific statutes and are conducted by external auditors. Statutory audits are mandatory for companies and it is instituted by the shareholders, who are the owners of a company to whom the company reports to. Statutory auditors are required to be uninfluenced and independent of the management of the company. We work diligently to ensure that our clients’ financial statements comply with all applicable laws and regulations.

Ahuja & Ahuja Chartered Accountants in India

It is a perpetual verification of accounting books, bills, vouchers, cash receipt, payments, bank reconciliation, utmost utilization of assets, safety and control assets, control of bad debts, etc. They are responsible for accounting procedure, finding budget variances, ensuring organization principles, policies, etc. It possible either its organization can have its own employees or appoint an outside agency to perform the duties of internal auditing.

Internal audit is often seen as being big company stuff – small and medium sized businesses usually can’t justify an in-house internal audit function, howeveroutsourcing provides a flexible cost effective solution. The concurrent audit serves the purpose of effective control as it is normally conducted by external agencies. 1) Internal auditor is appointed by the management & hence he is an employee of the enterprise; but, Statutory auditor is generally appointed by the shareholders in their AGM. Statutory audit mean audit done by under specific law while internal audit mean audit to check ,verify and indentify loopholes and find areas of control.

Students can find the best tutors and instructors through LearnPick’s online tutoring marketplace. We neither supply nor recommend tutors to those in search of such services, and vice-versa. LearnPick does not verify the identity or authenticity of information posted by tutors or students. You can learn more about verifying the identity of other users in our Safety Center. Internal audit is of regular nature but final audit is conducted after the preparation of final account. Ensure efficiency, unbiasedness, and effectiveness during the complete statutory audit.

It is either performed by the employee of an organization or a professional, as appointed by the Board of directors. When learning the differences between an audit and an investigation, the term investigative audit may sound confusing and a mingling of the two terms of audit and investigation. This term in accounting is a type or form of auditing and is also known as forensic auditing.

• A cost audit is an examination of a company’s cost records and financial statements to ensure they are accurate and comply with relevant laws and regulations.
• Phrases such as “Statutory Audit” and “tax audit” are not formally used in any statute rather for the purpose of ease of understanding these terms are used.
• Section 211 empowers the central government to institute a body called the serious fraud investigation office or the SFIO to appoint a number of inspectors who shall conduct investigations with respect to fraud.
• An internal auditor shall examine the records, controls, methods and practices of a company.

Financial statements represent the financial position of the company and are used by all the stakeholders to determine credibility of the company. As any error or fraud or misstatement may lead to heavy losses to the stakeholders. The subsequent auditor, i.e., appointed after the first auditor for a specified class of companies, shall hold the office.

This field is very detailed in terms of processes and controls and you don’t have to adhere to changing regulations unless the firm requires you to. Finally, pursuing a career in internal audit will allow you to develop a deeper understanding of the inner workings of an organization. This knowledge can be invaluable in advising senior management on strategic decisions and ensuring compliance with corporate governance requirements. Additionally, internal audit positions often come with better benefits and salary packages than those in statutory audit.

Section 217 of the Companies Act gives the procedure of the investigation. Once an inspector is appointed, he is empowered to start investigating any circumstances or arrangements which exist and are relevant to the purpose of the investigation. Only a member of the Institute of Company Secretaries of India holds a certificate of Practice (i.e. PCS) is qualified to undertake a secretarial audit of the company. The Company’s Board of Directors must appoint a secretarial auditor during a board meeting. To check the whether all the disclosures and compliances have been made according to the GST Act and that the taxes on the same have been duly paid.

ESOP strives for employees to work hard for the enhancement of the value of the company so that the value of their own investment can enhance. Seceterial Compliances We advise on complex corporate laws and our advisers offer deep expertise. An audit trail implies checking the transaction from its source data to ensure proper verification can occur.

Both cost audit and financial audit involve the examination of financial records and statements to ensure accuracy and compliance with laws and regulations. Internal Audit is carried out to provide unbiased and independent reviews of the system and processes of the business organizations. A statutory Audit is a type of audit mandated by the law or a statute to ensure that the books of accounts are true and fair as presented to the public and regulators. At Ahuja & Ahuja Chartered Accountants, we understand the significance of statutory audits as a crucial aspect of ensuring compliance with statutory requirements and providing a true and fair view of a company’s financial accounts. As a full-service, experienced CA firm in India with over two decades of industry experience, our team of seasoned Indian Chartered Accountants is equipped to handle statutory audits as mandated by the Companies Act, 2013. A Chartered Accountant, or member of the ICAI, is required to qualify as a statutory auditor.

An investigation gathers concrete and conclusive evidence, and the investigation report is acceptable evidence in a court of law. Investigations are conducted by inspectors appointed by the owners or management or any other 3rd party or the central government in accordance with the applicable provisions of the Companies Act of 2013. An audit can only be conducted by a chartered accountant in practice who is appointed under the Chartered Accountants Act of 1949. Investigations that are conducted in a business entity are governed by the Companies Act of 2013. Investigations regulated by law are carried out by inspectors that are appointed by the Central Government, which has the power to appoint such inspectors for investigation as is provided under Section 210 of the Companies Act of 2013.

As per SEBI guidelines, public limited companies are required to have the companies accounts audited after every three months. Only registered Chartered Accountant Auditors are authorised to audit the accounts and sign it. Auditing is the verification of the correctness of accounts and reliability of accounting system, date and information. An auditing, therefore, includes verification of correctness of the accounts, statements, reports, data, etc. and finally checking these data to see that they adhere to accounting principles, plans, procedures and objectives.

Statutory Audit – it refers to the audit carried out under statutory provisions , an auditor is considered to be independent under this, the management has no influance over him, his scope is determined by law. A non-specialist cannot differentiate between an internal audit and a statutory audit. As stated earlier, anything that is compulsory to maintain is called statutory in the eyes of the law. Statutory audit means the regular inspection, examination, and assessment of the accuracy and fairness of the accounts of an institution . Every company has its rules, policies, and working methods; these auditors mainly inspect whether these norms are followed or not.

In case of any business exigencies and time sensitive service requirements, you can always count on us. Statutory audit is an audit prescribed and governed by a statute or law. Every enterprise which is registered under the specific governing body has to follow the regulations as set by the law regarding the audit. The auditor performs an audit on a sampling basis and cannot do 100% checking. Thus, they cannot give absolute assurance; only a reasonable assurance is possible. Even though audit might not apply to certain small companies, if they get themselves audited, it helps them keep their systems strong and easily obtain bank loans and other facilities.

Should outline the audit process keeping in mind the scope, objectives, type of organization, and complexity. Check and confirm the presence of the company’s recorded financial assets. Improves the reputation of the company because the reports are free from errors misrepresentation and inaccuracies. Employee Stock Option Plan is one of the old methods of acknowledging the contributions of employees in the company by giving them certain ownership in the company. Traditionally, ESOPs were issued to the senior employees of the companies to acknowledge their contribution in building companies. Employee stock option plan is an old method of rewarding hardworking employees of the company by giving them shareholding in the company at a nominal rate.

Investigation refers to a process that is undertaken for a particular purpose with the aim of ascertaining a fact or discovering the truth. For a business entity, investigation pertains to the examination of the book of accounts in the history of transactions undertaken by the company. Investigations are undertaken with the aim of revealing some truth or establishing facts with the help of evidence. An investigation is an enquiry for examination into the company’s accounts with the purpose of collecting information and evidence with respect to the financial activities of an entity.

For one term of 5 years and then a cooling period of 5 years is to be provided, i.e., an auditor can be re-appointed after a break of 5 years. Investigations are conducted by inspectors who may be appointed by the owners or management or the central government, or any other 3rd party. However, the nature of audits a compulsory in nature and every company is required to conduct routine audits as per the Companies Act of 2013.