What is a Statutory Audit?
I originally wrote a really long article on this topic – probably because I’m a bit sad and enjoy audit-related work, as well as to try and show what a clever chap I am. In that article, I had included a lot of technical information and explanations.
However, that’s probably not why you’re here, so I thought better of it.
If you’ve searched for ‘what is a Statutory Audit’, you’re either studying for your Accountancy qualification, or you’re a senior person in a Company who has realised or been told the accounts must be audited. In the case of the former (if you’re a student), you’ll find out what it’s all about soon enough, and perhaps in more detail than you ever wanted. In the latter case (if you’re in business), you most likely just want to know the basics.
With that in mind, here goes [clears throat]…
A Statutory Audit is a process where company accounts - and the data behind those accounts - is examined by an authorised independent individual or team, so that they can express an opinion on whether the accounts faithfully represent the affairs of the company. (Some people might say, “Boom!” at this point. I suppose I could, but I’m nerdy about this stuff, and that’s not the official definition of a Statutory Audit – it’s just to get the point across in plain English.)
If you think about it, almost anything can be audited. In its most basic form, it is a ‘double check’ of something, by someone who has the appropriate knowledge to test whatever it is - but has no vested interest over the outcome of the test. Their only interest would be in the test itself. One example would be where Building Control Officers sign-off on a construction, confirming that it meets building regulations.
The people who do the auditing…
In my own words, above, I referred to ‘an authorised independent individual or team’. For statutory audits, who are we talking about here? Well, in short, it’s Registered Statutory Auditors. They are Accountants who go the extra mile and pass advanced audit examinations as part of their accountancy training, which involves mastering International Standards on Auditing and International Standards on Quality Control. This is no mean feat!
This is ultimately the end result, or output, of an audit. The auditor(s) seek to give an opinion - or ‘reasonable assurance’ - that the financial statements present a true and fair view of a company’s financial performance and position.
The term reasonable assurance is used because an audit cannot really provide a 100% guarantee that the financial statements are 100% correct. The only way that would be possible is if the Auditors went through every single transaction that made up a set of accounts; and I’m sure you’ll agree that this would be impossible on the grounds of both time and money considerations. Instead, Auditors take an overview of the Company’s affairs, and dig deeper into key areas which they deem to carry a higher risk of possible error or misstatement, and/or which are of a nature or magnitude to substantively alter the ‘message’ that the financial statements are conveying.
The eagle-eyed amongst you will have noticed that I switched between using the term ‘accounts’ and ‘financial statements’. Sorry… nerdiness happened again, but I’ll save the explanation for another article which you can find here.
Once it’s all over, any person or organisation who has an interest in how the company is doing has additional assurance (remember: ‘reasonable assurance) that the accounts are a fair and truthful reflection of what’s happened.
So, has any of this helped or added any value? Have you got to the end of reading this knowing more than you did before? If so, I am really, really happy!
Are you about to have a Statutory Audit (or even a non-statutory one for that matter)? Is it your first one, and you need help preparing for it, and getting through it? Have you been through audits before, but just don’t have the time this year? If so, and if you book us in early enough, DSV Accounting can help you get through your audit.
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