DIFFERENCE BETWEEN INTERNAL AUDIT VS STATUTORY AUDIT


Internal Audit vs Statutory
Audit

Though there is an accountant
in all organizations to record
the financial transactions and
for general book keeping,
companies have to pass
through an audit that is a sort
of scrutiny of the financial
statements of the company
prepared by the accountant.
This statutory audit is carried
out under the provisions of the
Companies Act 1956 (to give
opinions under section 227 of
the Act). This statutory audit is
a tool to safeguard the
interests of the shareholders of
the company to ensure that that
the organization is performing
satisfactorily financially.

However, there are companies
that get performed an internal
audit also to ensure they are
following the rules and
regulations of accounting and
to verify the statements
prepared by accountants. There
are many differences in an
internal audit and statutory
audit and these will be
highlighted in this article.
Internal audit is not mandatory
and it is the choice of the
management of the company to
get it done by its internal
auditors. Management does not
want to be red faced in case of
any irregularities when
statutory audit is conducted
which is why, to keep a check on
the operations of the company,
internal audit is done. Whether
an internal audit has been
carried out or not, statutory
audit is done that comments on
the effectiveness of the
financial statements of the
company. It is necessary to
ensure that the company is
following the rules and
regulations in maintaining its
books and there is no
compromise with the financial
interests of the shareholders.

The most obvious difference
lies in the appointment of the
auditor. While internal auditors
are appointed by the
management of the company,
statutory auditors are
appointed by the shareholders
of the company. Another
difference lies in the
qualifications of the auditors.
While it is mandatory for
statutory auditors to be
certified chartered accountants,
it is not necessary for internal
audit and the management may
appoint persons it deems fit.

The main objective of statutory
audit is to give a fair and
impartial assessment of the
financial performance of the
organization while at the same
time try to spot any
discrepancies and frauds.
Internal audit also tries to
detect any anomalies and errors
that may have crept in the
financial statements. There is no
way internal management can
change the scope of statutory
audit as is the case with internal
audit where the mutual consent
of the management and the
auditors is enough to decide
the scope of the audit exercise.
While the auditors of a
statutory audit submit their
final report to the shareholders
in their general meeting, the
report of the internal audit is
handed over to the
management by the auditors.
Once appointed, statutory
auditor is extremely hard to get
removed and the management
has to take permission of the
central government after its
board of directors recommends
a proposal to this effect. On the
other hand, management can at
any time remove internal
auditors.

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