What Is A Statutory Audit And What Are The Procedures Involved In It?

What Is Meant By A Statutory Audit?

Statutory audit refers to an inspection and evaluation of financial records and statements of a government organization or a company; it is a legal requirement and must be conducted from time to time. The main aim of conducting such an audit is to ensure that the financial records and information provided by the companies to the public are true and fair as it represents the financial position and performance of the company.

Why A Company Should Conduct A Statutory Audit?

Usually, a statutory audit is performed in order to check the correctness of the records and statements provided by the firm to the public. Through the statutory audit, the public can ensure whether the companies adhere to the rules and regulations while they perform their business activities. During a statutory audit the bank balances, accounting records, prevailing working conditions, internal systems, etc. are inspected to get a transparent picture of the firm’s activities and current position.

What Are The Essential Requirements Of A Statutory Audit?

For conducting a statutory audit, a firm is required to appoint an independent statutory auditor to perform the audit for the business. Other essential requirements include the following:

1. Fixed asset details
2. Bank account statements including credit and debit transactions for the specific period as required
3. Details regarding secured and unsecured loans if any
4. Trade receivables and payables
5. Purchases and sales all local, imports and exports
6. Details of inventory
7. Tax records, along with statutory dues and duties 
8. Expenses incurred in selling and administration
9. Forex profits and expenditure details

The company may be required to furnish other records, statements, or accounts as per the request of the statutory auditor. The duration of the audit may vary; sometimes it may take a month or more than that according to the nature and size of the company.

Advantages Of Statutory Audit 

1. Improves the image and goodwill of the company.
2. Increases public confidence and credibility of the company.
3. Helps the customers and investors to get a transparent picture of a firm’s fiscal position and performance.

How Can A Statutory Audit Be Useful To A Firm?

The statutory audit may be useful for the companies operating in UAE in the following ways:

1. It is mandatory for all UAE mainland companies to get their accounts and records audited from a licensed statutory auditor, various free-zone companies may have certain requirements.
2. In the course of renewing the business licenses, the companies must submit their statutory audit reports.
3. The companies may be required to provide all statutory audit reports when they approach any bank or financial institution for getting loans or capital investments etc.
4. The statutory audit report of all the financial transactions and accounts must be provided to the shareholders, general public, and other entities to know the current financial position, in the case of a public company.
5. In the course of share transfer of the company, the statutory audit may play the role of central reference point to determine the accuracy and reliability of the accounts and transactions.
6. A statutory audit report provides the complete picture of a company; hence the public and the interested parties can evaluate its current financial position. It also helps to build public confidence and credibility in the company.

What Are The Procedures Followed During The Statutory Audit?

1. Appointment of a licensed statutory auditor.
2. Acceptance by the appointed statutory auditor to conduct the audit of the financial statements and records of the company.
3. The auditor and his team will monitor and understand all the operations of different departments and ensure whether the industrial guidelines are followed or not.
4. Then the auditor may evaluate the control systems and procedures implemented by the company, they may also go through the past audit reports to get an idea of past observations and the strategies taken.
5. In the end, the auditor may examine all the financial records and statements provided by the company e.g. bank statements, fixed asset details, trade payables, and receivables, etc.
6. The auditor on the basis of his observation may prepare a detailed report which will be submitted to the company management and which may be used for further requirements.

Why Choose CDA?

CDA is known for providing the best assistance to its clients for maintaining accurate and error-free records of all financial transactions. Our professionals are always ready to help you out with all kinds of accounting and auditing challenges. We always focus on providing personalized and customized services as per the requirements of our clientele. We are always there to guide our clients regarding all requirements of statutory audit. For more details feel free to contact us.