As one of Kildare's best accountancy services, we have assisted hundreds of businesses in preparing for a statutory audit. Of course, some businesses find the audit time a little stressful and confusing. We often get questions on these types of audits. Therefore we want to share our expertise while making this information more accessible to our clients. We have gathered some of the most common questions and given comprehensive answers below. Please read on to learn more about statutory audits in Kildare.
What is a statutory audit?
A statutory audit, also known as an external or financial audit, examines a company's financial statements and records conducted by an independent auditor. The purpose of a statutory audit is to determine whether the financial statements prepared by the company present an accurate and fair view of its financial position, performance, and cash flows in accordance with the applicable financial reporting framework.
Statutory audits are typically required by law or regulation for certain types of organisations, such as public companies, government agencies, and nonprofit organisations. The objective is to ensure transparency, accuracy, and reliability of the financial information being presented to shareholders, investors, creditors, and other stakeholders.
The auditor reviews the company's financial statements, supporting documents, and accounting records during a statutory audit. They assess the accounting principles and policies used, evaluate internal controls and risk management systems, verify the accuracy of financial data, and test the overall compliance with relevant laws, regulations, and accounting standards. The auditor then issues an independent opinion on whether the financial statements are free from material misstatements or if any concerns or irregularities are identified.
The audit report produced at the end of the process assesses the company's financial health, highlighting any areas of concern or improvement. It adds credibility and assurance to the financial information and enhances investor confidence in the organisation.
What is the difference between an audit and a statutory audit?
The term "audit" is a broader concept encompassing various types of examinations and assessments, while a "statutory audit" refers to a specific type of audit that is legally required for certain entities. Here are the key differences between an audit and a statutory audit:
Scope and Purpose: An audit can refer to any examination or review of financial statements, internal controls, processes, or systems. It may be performed voluntarily by an organisation or mandated by stakeholders. On the other hand, a statutory audit is a legally mandated audit
that is required by specific laws or regulations. It focuses on ensuring compliance with applicable financial reporting and legal requirements.
Legal Requirement: While an audit can be conducted voluntarily, a statutory audit is a mandatory requirement imposed by legislation. It typically applies to public companies, government agencies, nonprofit organisations, or other entities specified by law. The purpose is to protect the interests of shareholders, investors, creditors, and the general public.
Independence: Both audits and statutory audits are conducted by independent, qualified auditors. However, the freedom and qualifications of the auditor may be explicitly regulated and mandated for statutory audits to ensure objectivity and credibility in the examination process.
Reporting: In an audit, the auditor produces a report that provides an opinion on the fairness of the financial statements and often includes recommendations for improvement. In a statutory audit, the auditor issues a specific "statutory audit report" report that outlines the findings, compliance with legal requirements, and any material misstatements or irregularities identified.
Legal Consequences: The results of a statutory audit can have legal implications. Noncompliance with legal requirements identified during the statutory audit may lead to penalties, fines, legal actions, or other consequences specified by the relevant laws or regulations. On the other hand, voluntary audits do not typically carry legal matters but serve as a tool for improving internal controls, enhancing transparency, and gaining stakeholder confidence.
In summary, a statutory audit is a specific type of audit that is legally required, focusing on compliance with financial reporting and legal requirements. On the other hand, an audit is a broader term that refers to various examinations, reviews, or assessments, which can be conducted voluntarily or as mandated by stakeholders.
Which companies are required to be audited?
The requirement for a company to undergo an audit can vary depending on the jurisdiction, legal structure, and size of the company. While the specific regulations may differ from country to country, the following types of companies are generally more likely to be required to undergo an audit:
Public Companies: Companies that have issued shares to the public and are listed on a stock exchange or have many shareholders are often required to have their financial statements audited. The aim is to protect the interests of shareholders and ensure transparency in financial reporting.
Large Private Companies: In many jurisdictions, large private companies, usually defined based on criteria such as revenue, assets, or number of employees, must undergo an audit. The threshold for a "large" company can vary, but it is generally aimed at capturing entities with a significant impact on the economy or stakeholders.
Financial Institutions: Banks, insurance companies, and other financial institutions are subject to rigorous regulatory oversight, and they are often required to have their financial statements audited. The audit helps ensure the stability of the financial sector and the protection of depositors and policyholders.
Nonprofit Organisations: Nonprofit organisations, such as charities, foundations, and NGOs, may be required to undergo an audit to ensure proper use of funds, compliance with regulations, and accountability to donors, grantors, and the public.
Government Agencies: Public sector entities, including government departments, municipalities, and government-owned corporations, may be subject to audit requirements to ensure the appropriate use of public funds and compliance with legal and financial regulations.
It is important to note that the specific audit requirements can vary significantly by country, and there may be exemptions or different thresholds based on factors like company size, ownership structure, industry, or regulatory requirements. It is advisable to consult the relevant laws, regulations, and professional advice to determine the specific audit obligations for a particular company in a specific jurisdiction.
If you still have questions on statutory audits, please get in touch with our Kildare accountancy offices today.