Statutory Audit || Advantages Of Statutory Audit

Statutory audits serve as a cornerstone of financial transparency and accountability in the business world. By adhering to legal requirements, these audits provide an official and authoritative examination of a company’s financial statements, ensuring that all financial representations are true, fair, and in compliance with accounting standards. 

Legal Requirements for Statutory Audits

A statutory audit is required by statute in many jurisdictions around the world, including under laws such as the Companies Act 2006 in the UK. These audits are mandatory for publicly traded companies, financial institutions, and certain private companies that meet specific criteria, such as those that deal with client funds or are of a certain size.

The audit must be conducted by an independent, qualified auditor or an external audit firm. These auditors are tasked with providing an opinion on whether the financial statements present a true and fair view of the company’s financial position and performance, based on a company’s records and according to relevant accounting standards and regulations.

The Statutory Audit Process

The statutory audit process involves a detailed examination of a company’s financial records and statements. This examination helps ensure that the financial statements are free from material misstatement, whether due to fraud or error. The process includes various audit engagements, such as testing the validity and reliability of information presented in the financial statements and evaluating the company’s internal controls and processes.

The Role of the Statutory Auditor

Statutory auditors, also known as external auditors, are professionals who are legally required to review the accuracy and completeness of a company’s financial statements. They are not employees of the company but are independent auditors appointed by the shareholders during the annual general meeting. Their independence is crucial to maintain the objectivity of the audit.

Difference Between a Statutory Audit and Other Types of Audits

The key difference between a statutory audit and a non-statutory audit lies in the legal requirement. While a statutory audit is mandated by law, a non-statutory audit is not legally required and is usually undertaken voluntarily by a company to meet internal or contractual requirements.

Furthermore, unlike statutory audits which focus primarily on financial records, non-statutory audits can cover other areas such as operational audits, compliance audits, and more specialized audits like a tax audit. However, both types of audits can be conducted by an independent external auditor.

Advantages of Statutory Audits

Strengthening Trust with Investors and Stakeholders

One of the most significant advantages of statutory audits is the increased level of trust that companies can build with their investors and stakeholders. An audit provides a third-party verification of a company’s financial health, signaling to stakeholders that the company is financially sound and transparent. According to a survey by the Association of Certified Fraud Examiners, companies with regular audits are less likely to experience instances of fraud, as audits act as a deterrent to fraudulent activities. For companies looking to attract investment and maintain good relationships with stakeholders, a statutory audit offers a clear sign of commitment to financial integrity and accountability.

Actionable Tip:

Regularly communicate the outcomes of statutory audits to shareholders and stakeholders through annual reports or shareholder meetings. Highlight any improvements or corrective actions taken as a result of the audit findings.

Enhancing Regulatory Compliance

Statutory audits are pivotal in ensuring that a company complies with ongoing financial regulations and laws. This is crucial not only for avoiding legal penalties but also for maintaining a company’s operational license and public image. By identifying discrepancies and non-compliances, statutory audits help companies adjust their practices to meet required standards.

Actionable Tip:

Use the insights gained from statutory audits to refine internal compliance programs. Regular training sessions for staff on the latest regulations can help prevent future discrepancies and improve overall compliance.

Improving Risk Management

Through the detailed examination of financial records and practices, statutory audits help companies identify areas of financial risk before they evolve into more significant problems. This proactive identification allows companies to address vulnerabilities and implement stronger controls, thereby mitigating potential risks to their financial health and operational stability.

Actionable Tip:

Develop a risk management plan based on audit findings to address and monitor identified risks systematically. Assign responsibility for managing these risks to specific team members or departments.

Supporting Decision Making

Statutory audits provide critical financial insights that can guide strategic decision-making within a company. By offering an accurate and current picture of the financial position and performance, audits enable management to make informed decisions about investments, growth strategies, and resource allocation.

Actionable Tip:

Incorporate audit results into the strategic planning process. Use audited financial statements to assess the feasibility of potential projects and to prioritize initiatives based on solid financial data.

Streamlining Financial Practices

Regular statutory audits often lead to the standardization and streamlining of financial practices within an organization. Auditors typically recommend improvements to enhance the efficiency of financial reporting and management. Implementing these recommendations can reduce costs, improve accuracy, and speed up financial processes.

Actionable Tip:

Implement technology solutions recommended by auditors to automate and streamline financial reporting, such as advanced accounting software or integrated management systems.

Statutory Audit Requirements: Special Considerations

Specific statutory audit requirements can vary depending on the jurisdiction and the type of company being audited. For instance, companies in the financial sector might have additional regulatory requirements to comply with, as they often undergo both financial audits and regulatory audits to ensure they meet industry standards and protect investor interests.

In some countries, certain small businesses may be exempt from statutory audits, depending on factors like their turnover or the nature of their business. This is often stipulated under audit exemptions in the national legislation, such as the Income Tax Act or specific state-level statutes.


Statutory audits are an essential aspect of corporate governance, providing a legally required review of a company’s financial accuracy and helping to maintain transparency and trust among investors, regulators, and the general public. Whether mandated by the federal or state level, these audits are critical for companies subject to audits, especially publicly traded companies and those in sectors like finance and brokerage. Through rigorous examination of records held by these companies, statutory audits help ensure that the financial statements are accurate, thereby supporting a stable economic environment.

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