Shareholders authorize auditors to examine a company's financial statements under an audit engagement. In most cases, auditors seek to ensure the subject matter is free from material misstatements. On top of that, they also assess whether it adheres to standards or other regulatory frameworks. This process is crucial to ensure the accuracy and reliability of financial statements.
Companies may conduct audits mandatorily or voluntarily. The difference between these also constitutes that of statutory and non-statutory audits. Before discussing this difference, it is crucial to understand both types individually.
What is a Statutory Audit?
A statutory audit involves examining financial statements as a mandatory process under the law. In most cases, it is an external audit conducted by independent auditors. The primary objective of these audits is to ensure compliance with the law for conducting an audit. Based on the type of audit, the engagement may also have other goals.
A statutory audit is mandatory under the law for specific companies. In most cases, these involve large or public corporations. Most jurisdictions require these companies to conduct statutory audits after a predefined interval. In most cases, this interval is a year. Other audits performed between these intervals do not fall under the definition of a statutory audit.
The primary distinction of a statutory audit from other audits is the requirement under the law. This requirement may come from the local or federal government. The jurisdiction company operates in dictates whether it should conduct a statutory audit. Companies functioning in several jurisdictions must follow the rule for each area individually.
What is a Non-Statutory Audit?
A non-statutory audit is one that companies perform beyond the audit engagements required under the law. Companies may conduct these for other purposes. Usually, non-statutory audits follow the same process as statutory ones. Non-statutory audits include all audit engagements that are not mandatory under the law.
Companies may still conduct non-statutory audits as a requirement from other stakeholders. For example, creditors may require companies to provide audited financial statements for specific purposes. However, these audits do not fall under the criteria of the law. Therefore, they do not meet the definition of a statutory audit.
The primary purpose of a non-statutory audit is to meet the requirements set forth by stakeholders. Moreover, companies may conduct these audits to assure users of the accuracy of their financial statements. There is no specific requirement for how often companies must conduct these audits. Usually, companies perform them quarterly or when needed by stakeholders.
Statutory vs Non-statutory Audits: What is the difference?
Based on the above definitions of statutory and non-statutory audits, the difference between them is straightforward. This difference involves the requirement by law or government agencies. If an audit is mandatory under rules and regulations, it is a statutory audit. However, if companies conduct them outside this requirement, it falls under the definition of a non-statutory audit.
Another difference between these audits is the interval. The law in most jurisdictions requires companies to conduct a statutory audit once a year. It may also apply once every quarter if companies prepare quarterly reports. However, no such requirements exist for non-statutory audits. Other than these aspects, both types of audits use a similar process.
Conclusion
Companies conduct audits to assure users of the accuracy and reliability of their financial statements. Sometimes, these audits may also be required under the law. If so, they fall under the definition of a statutory audit. Companies may also perform them outside the requirement by law. In that case, it will fall under a non-statutory audit.
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