Statutory audit and its significance in today’s world
In today’s world, everyone wants a full-proof assurance of one sort or another. People look at financial information for the purpose it serves them. There are expectation gaps between the users of audited financial statements and the kind of assurance that statutory auditors provide. The law prescribes a statutory audit, and accordingly, the statutory auditor makes his report on the accounts examined by him and opines if the financial statements of the company represent a true & fair view of its state of affairs and profitability.
Statutory Audit - Expectation v/s reality In today’s world, everyone wants a fullproof assurance of one sort or another. People look at financial information for the purpose it serves them. There are expectation gaps between the users of audited financial statements and the kind of assurance that statutory auditors provide.
Statutory provisions ask auditors to check if the companies have fulfilled legal requirements or not. Auditors put their efforts into finding out whether the legal requirements are met, and financial statements are reliable.
Statutory Audit - Expectation v/s reality However, stakeholders need assurance in the areas of internal controls and fraud. They also need assurance from the auditor that the company is a going concern, and it is not going to shut down in the near future. The auditor’s report does not contain any specific assurance to that aspect.
Further, stakeholders also want auditors to express their opinion on the performance of the management of the company. There are expectations from stakeholders that auditors should also perform value for money audits as a part of their statutory audit, and they should publish their audit queries along with the management responses for the stakeholders to have a look.
Significance of Statutory Audit Validation of the Finances The external auditor validates the accounting records which are prepared by the company staff. The auditor ascertains that the financial records are accurate, and they are free from material misstatements. The statutory audit provides an independent opinion on the true and fair view of the financial position and profitability of the company.
Earn Credibility Credibility plays a vital role in the growth of the company. When the company is credible, it will surely attract more individuals to invest in the company. It also helps to win the trust of government authorities who now know that the organization is reliable in the market. It creates a positive brand image in the eyes of the customers, and that fuels the growth of the company.
Significance of Statutory Audit Rectifying the Errors While the external auditor conducts auditing, he goes through all the books of accounts and detects errors and omissions. Such errors and omissions can be rectified, and accurate financial
records can be maintained. Reduce the chances of fraud When a company doesn’t conduct external auditing, there will be no independent check of the financial records of the company. Employees may start conducting scams that may remain
undiscovered, causing loss of money and reputation.
Significance of Statutory Audit Get an objective and independent opinion The external auditor goes through all the company’s financial details and knows the best about the financial condition of the company. From an external auditor, you can get an unbiased opinion about the functioning of the company. This can help to take the business in a correct direction. A statutory audit provides the required confidence to the shareholders that the company management is taking due care in the overall functioning of the company. Fulfillment of statutory requirements
A statutory audit provides the information required by the law, which in turn enables stakeholders to evaluate the performance of the company. Since auditors are objective and independent, stakeholders have trust in them. They rely on their statutory audit report and make economic decisions based on that.
Significance of Statutory Audit Validation of Internal control framework
Statutory auditors evaluate the client’s internal control framework and accounting methods and check if the controls are adequate and operating, accounting policies are consistently followed, and the financial records match with the financial statements. A statutory audit helps in improving the efficiency and honesty of the employees. Employees know that their financial records are subject to an independent examination by external auditors, and hence they stay away from wrongdoings Comparable financial statements Statutory auditors also ensure that financial statements are comparable with the prior periods and with similar organizations in terms of their format and content. If any events have occurred after the balance sheet date, then they are appropriately disclosed, all unusual transactions are disclosed, and that makes financial statements free from material misstatements. Auditors also identify any material deviation from generally accepted accounting policies and disclose them suitably in their statutory audit report.
Significance of Statutory Audit Strengthening of the internal audit department
A statutory audit helps organizations strengthen their internal audit function as it evaluates the effectiveness of internal controls and internal audit processes.
Frequently Asked Questions What is the purpose of a statutory audit? The purpose of a statutory audit is the expression of an opinion as to the true and fair view of the financial statements of a company.
What if a company doesn’t conduct the statutory audit? According to the Commercial Companies Law of UAE, the statutory audit report is mandatory for all the companies functioning in the mainland.
Frequently Asked Questions What are internal controls, and what are their types? Internal Controls is a control mechanism set by the management to ensure: • • • •
Safeguarding of company assets Prevention and detection of frauds and errors Accuracy and completeness of the accounting records Timely preparation of financial information
There are two types of internal controls. They are: • Preventive – Preventive controls aim to prevent undesired events from occurring. They are proactive in nature. • Detective – Detective controls aim to detect the undesired acts.
Frequently Asked Questions What types of evidence statutory auditors examine to verify the accuracy of financial information? Statutory auditors inspect documents, inquire people, observe the way of working of employees, obtain third-party confirmations, and test sample transactions, and apply other procedures they deem fit to verify the accuracy of financial information.
Frequently Asked Questions How should I prepare for a statutory audit? You should keep your financial records accurate and up-to-date. You should verify that you have documentary evidence for all the transactions. You should reconcile your accounts to identify and resolve items well before the statutory auditors arrive.
How much time will it take to conduct the external audit? The time required for auditing depends upon the size of the company, its structure, and its complexities in the transactions.
Our Statutory Audit Services N R Doshi and Partners has a team of highly qualified and experienced auditors who have served across the UAE.
These auditors have dealt with various clients from different industries, and they know how to customize their audit methodologies depending upon the statutory audit services requirement and client environment.
Besides carrying out statutory auditing of companies, we also provide other audit services, which are internal audit service, financial audit service, IT audit service, and agreed-upon procedure audit service.
Contact us now and have the assurance you want!
THANKS FOR WATCHING!!!