The word audit is derived from the Latin “Audire” which means “Hear”. The audit is the Process by which competent individuals examine accounting records to form an opinion and generate the audit report.
OBJECTIVE OF AUDIT:
The main objective of an audit is the assessment of financial statements prepared within a framework of recognized accounting policies and helps to present the true and fair view of the financial position of the business.
Following are the objectives to be realized
- Detection and prevention of errors
- Detection and prevention of frauds
- Clerical Errors
- Compensating Errors
- Errors of Principles
What Is Statutory Audit:
Statutory audit is the legally required review of financial statements to determine the accurate financial position of the organization with local laws and regulations. It’s an independent assessment of whether the financial reports of the organization are true or not. A statutory audit is done by the board of directors and management of the company.
The tax department is the best example of statutory audit as they instructed the entities to present their duly audited reports and check the authenticity of the reports and check whether the entities pay their taxes according to their income or not on the other hand it makes the local government accountable for the appropriation of the tax payer’s money.
Why Statutory Audit Is Important:
Statutory audit is important as the audit report presents the true and fair assessment of company financial statements which help to retain the confidence of shareholders and also improve the company’s internal controls and systems.
Advantages of Statutory Audit:
- It increases the authenticity of the financial reports as the statements are properly verified by the auditor.
- Improves the credibility of the organization because when the audits have been conducted the financial reports are free from error, fraud and misrepresentation, and inaccuracies.
- It helps to improve the management to perform their job efficiently.
- Improves the efficacy of the internal system because the auditors analyze, study, and interpret business function and compare with policies and come up with suggestions and recommendations to improve the business.
- Minimize the risk of fraud in an organization
- Helps to gain the trust of shareholders, banks, and government.
Disadvantages of Statutory Audit:
- Audits are no doubt costly reports and in the case of statutory audit outsourcing increases the cost
- The conflict between the interest of audit members affect the quality of the audit report
- Audit sampling may affect the accuracy of an Audit report
- The time limit may affect the accuracy of the audit report
- The hiring of Inexperienced audit staff
- Evidence constraint may lead to the possibility of error.
Statutory audits are important and essential for a number of reasons, first such kinds of audits are required by law and help to ensure that the management is not dysfunctional and have proper internal controls and helps to reduce the risk of fraud, misstatement of Financial Statements. Statutory Audit increases the credibility of the business and helps to improve the business process.