What is a Statutory Audit?
A statutory audit is an independent inspection of a company’s accounts. These inspections are required by law should your business fall within the thresholds below:
- Turnover greater than £10.2 million per year
- £5.1 million or more in total business assets
- More than 50 employees
There are also times in which circumstances may impact whether a company is required to be audited, these can include:
- The first period of accounts
- First period where limits are exceeded
- Companies that form part of a larger group
- Periods that do not run for exactly 12 months
These thresholds are set to change in October 2024. The outlined changes can be seen in the table below.
| Threshold | Micro | Small | Medium |
| Turnover | £632k to £1m | £10.2m to £15m | £25m to £54m |
| Gross Assets | £316k to £500k | £5.1m to £7.5m | £18m to £27m |
| Employee Numbers | 10 (same) | 50 (same) | 250 (same) |
For more information on the new thresholds you can read our article on the statutory audit threshold changes.
What Types of Companies Must Undertake a Statutory Audit?
Although there are thresholds for companies that will require a statutory audit, certain types of companies are required to have a financial audit irrespective of their size and turnover.
- Private Limited Companies (PLCs)
- Certain entities regulated by the FCA (Financial Conduct Authority)
- Certain entities involved in insurance, banking and certain other financial activities
The Difference Between a Statutory and Non-Statutory Audit
The only difference between a statutory audit and a non-statutory audit is that one is a legal requirement under the Companies Act 2006 and the latter is not.
If you choose to undergo an audit but are not required to have one by law, the areas and information covered would be the same. This includes a review of:
- Balance sheets
- Income Statement
- Changes to equity in the business
- Cash flow statement
- Explanatory notes, such as accounting policies
The job of the auditor is to challenge the financial statements and make sure that they have been compiled correctly and accurately reflect the business’s true financial position.
Who Carries Out a Statutory Audit?
An audit must be carried out by an independent auditor and will take place annually. Usually, a business auditor will be a specialist within a chartered accountancy firm. The specialist auditor or audit team will have the responsibility to carry out the audit in line with the regulations and will make sure that your business remains compliant.
During the audit process, you may be required to assign a manager or member of staff to assist in providing information that the auditors may require, this person is usually someone who has access to and understands the company’s finances.
Understanding the Importance of Audits
A financial business audit is a crucial process that companies undertake to ensure the accuracy and reliability of their financial statements. By conducting a financial audit, companies can provide assurance to stakeholders, including shareholders, investors, and lenders, that the financial information presented is trustworthy and reflects the company’s true financial position.
Although some audits are required to meet regulations, businesses may choose to undergo an audit and their importance cannot be overstated, as they serve several key purposes.
Firstly, it helps to detect and prevent fraudulent activities, ensuring that financial statements are free from material misstatements or misrepresentations. This enhances the credibility and integrity of the company’s financial reporting, which is vital for maintaining investor confidence and attracting potential investors.
Additionally, a statutory audit helps to identify any weaknesses or deficiencies in the company’s internal controls, allowing management to take corrective actions and improve operational efficiency.
On top of these, the most important aspect of a statutory audit is that it is essential for regulatory compliance. For companies that are required to have an audit, it ensures that the company adheres to the relevant accounting standards, such as the International Financial Reporting Standards (IFRS) or the UK Generally Accepted Accounting Principles (UK GAAP).
Companies can provide reliable and comparable financial information by complying with these standards, enabling stakeholders to make informed decisions based on accurate and consistent data.
Key Components of an Effective Auditing Process
An effective auditing process consists of several key components that ensure the accuracy and reliability of financial information. Auditors will go through all the following stages to ensure that their report is accurate:
Planning:
Before conducting an audit, thorough planning is essential. This involves understanding the company’s business operations, identifying risks, and developing an audit strategy accordingly. Adequate planning will allow auditors to allocate resources effectively and focus on areas of higher risk.
Risk Assessment:
They will then assess the risks associated with a company’s financial statements. This involves evaluating the internal controls, identifying potential fraud risks, and determining the materiality of misstatements.
Evidence Gathering:
The next stage of the audit process involves the auditors gathering sufficient and appropriate evidence to support their conclusions. This involves testing the company’s financial transactions, examining supporting documents, and obtaining corroborative evidence from external sources. The evidence-gathering process provides a basis for forming an opinion on the financial statements.
Evaluation of Internal Controls and Processes:
The evaluation of the effectiveness of a company’s internal controls is an important component of an audit. An assessment will include a review of controls, identifying control deficiencies, and recommending improvements.
Analytical Procedures:
Auditors perform analytical procedures to assess the reasonableness of financial information. This involves comparing current and prior period data, benchmarking against industry standards, and investigating significant fluctuations or anomalies. This procedure helps auditors identify potential errors or irregularities that require further investigation.
Reporting:
Finally, auditors will prepare a comprehensive audit report that communicates their findings and opinions. The report includes a description of the audit scope, the auditor’s opinion on the fairness of the financial statements, and any significant issues or recommendations. Clear and concise reporting is crucial for providing stakeholders with a clear understanding of the audit results.
Need Support With Your Business Audit?
If you require a staturoy audit or you’d like to be audited to get a better understanding of your finances, CN Chartered Accountants has a specialist team of auditors who are able to assist.
Our auditors are experienced, professional and unbiased, with a track record of helping businesses to improve their systems and controls. They will also work around you, to complete your audit with as little disruption to your business as possible.
If you’d like to speak with our auditor, please give us a call or fill out the contact form below.
