In this article, we will break down the differences between statutory and non-statutory audits. Financial or Business audits are used to assess a business’s financial information and processes to help management or owners make better decisions.
Statutory Audits: Who Requires Them?
Statutory audits are required by law for certain types of organisations, such as public companies, government agencies, and nonprofit organisations. Organisations of a certain size and turnover will also be required to have a yearly statutory audit.
These audits are mandated to ensure that organisations are operating in compliance with relevant laws, regulations, and accounting standards.
Statutory audits are typically conducted by external auditors who are independent and have the necessary expertise to evaluate the financial statements and internal controls of the organisation.
The purpose of a statutory audit is to provide assurance to stakeholders, such as shareholders, regulators, and the public, that the organisation’s financial statements are reliable and accurate.
The findings of a statutory audit are usually documented in an audit report, which is made available to the stakeholders. The documents will highlight areas for improvement within the business and help improve efficiency.
Non-Statutory Audits: When are They Required?
Non-statutory audits, also known as voluntary audits, are not required by law but organisations may choose to have them conducted for various reasons.
These audits are usually initiated by the management or board of directors of the organisation to assess its financial performance, identify areas of improvement, and provide additional assurance to stakeholders.
Non-statutory audits can be useful for privately held companies, small businesses, and other organisations that are not legally obligated to undergo a statutory audit.
The scope and objectives of a non-statutory audit can be tailored to meet the specific needs and requirements of the organisation rather than meeting legal or compliance requirements.
The findings of a non-statutory audit can help the organisation in making informed business decisions and improving its financial management practices.
Key Differences
The key differences between statutory and non-statutory audits include:
Legal Requirement:
Statutory audits are legally required for certain organisations, while non-statutory audits are voluntary.
Scope and Objectives:
Statutory audits are focused on compliance with laws and regulations, while non-statutory audits can have broader objectives, such as performance evaluation and risk assessment.
Reporting:
Statutory audits require the issuance of an audit report that is made available to stakeholders, while non-statutory audits may or may not result in a formal report.
Auditor Independence:
Statutory audits require the involvement of external auditors who are independent of the organisation, while non-statutory audits can be conducted by internal auditors or external consultants.
Frequency:
Statutory audits are usually conducted annually, while non-statutory audits can be conducted at any time as per the organisation’s discretion.
Public audits (for listed entities) have quarterly and half yearly requirements. Whilst it’s not a complete audit it’s still part of the statutory audit process.
Benefits of Each Type of Audit
Statutory audits offer the following benefits:
- Compliance: By undergoing a statutory audit, organisations ensure compliance with legal requirements and maintain transparency in their financial reporting.
- Investor Confidence: The audit report generated from a statutory audit provides assurance to investors and stakeholders about the accuracy and reliability of the organisation’s financial statements.
- Highlight Fraudulent Behaviours: Annual statutory audits can help businesses to identify is there is fraudulent behaviour or irregularities in your business.
- Risk Assessment: Statutory audits help in identifying and mitigating financial risks, thereby safeguarding the organisation’s assets and reputation.
Non-statutory audits offer the following benefits:
- Performance Evaluation: Non-statutory audits provide an opportunity to evaluate the organisation’s financial performance and identify areas for improvement. This can help owners and management make informed financial decisions going forward.
- Internal Control Assessment: These audits help in assessing the effectiveness of the organisation’s internal controls and identifying any weaknesses or gaps. Again helping owners and management to improve their internal processes and become more efficient.
- Stakeholder Assurance: Non-statutory audits can enhance the confidence of stakeholders, such as lenders, suppliers, and customers, in the organisation’s financial health and management practices.
- Tailored: Due to non-statutory audits not being a legal requirement or for compliance purposes, they can be tailored to your business requirements. This can reduce costs and ensure you only get the reporting that is wanted.
Choosing Between Statutory and Non-Statutory Audits:
The choice between a statutory and non-statutory audit is less of a choice, but more dependent on whether or not you meet the criteria for requiring an audit.
Here are some areas to consider ahead of being audited.
Legal Obligations:
Determine if your organisation falls under the legal requirements for a statutory audit. If you meet the requirements you will need to have an audit carried out.
If you don’t meet the legal requirements but are thinking about have an audit, you should assess the potential benefits and consider what information and reporting you want carried out.
Stakeholder Expectations:
Consider the expectations of your shareholders, investors, lenders, and other stakeholders. If they value the assurance provided by an audit, it may be beneficial to undergo one.
Internal Resources:
If you’re not required to have an external audit by a third party, but are wanting to complete a non-statutory audit on your business, you should assess the availability of internal resources.
Do you have qualified staff and the time to undergo an internal audit without the need of a third party. Non-statutory audits are more flexible in terms of resource requirements and can be tailored to meet your business needs.
However, we recommend using a third party for all audits as it will ensure an unbiased report and ensure accuracy in the reporting.
Business Needs:
If you’re considering having an audit but are not required to due to the size of your business, you will need to think about what you want from your audit.
You will be able to choose which aspects of the business you want reviewed, how much you’re willing to pay and whether it should be carried out internally or by a third party.
Need Support?
If you need support with your statutory audit or are thinking about have an external audit to review your company processes, CN Chartered Accountants can support you.
We have a team of experienced, dedicated auditors that carry out business audits every year. We can advise you on the recommended reporting for non-statutory audits or complete your required audit with as little disruption to your business as possible.
To get in touch with a member of the audit team, please call us or fill out the contact form below.
