WHAT IS AUDIT?
“Audit is an examination of accounting records, undertaken with a view to establishing whether the correctly and completely reflect the transactions to which they purport to relate.” Prof. Dickers
“Auditing is concerned with the verification of accounting data, determining the accuracy and reliability of accounting statements and reports.” R.R. Mautz
“Long range objectives of an Audit should be to serve as a guide to management's future decisions in all financial matter such as controlling, forecasting, analysing and reporting. These objectives help the business unit to improve its performance.” Arthur W. Holme
- Auditing is nothing but the systematic and critical examination and verification of the books of accounts. It can be undertaken throughout the year or periodically.
- The primary aim is to find out whether the financial statements exhibit a true and fair view of the business.
- Origin of the term audit is said to be in the Latin term audire which means to listen.
- Audit of accounts by a duty qualified chartered accountant is mandatory for the registered joint stock companies, public trusts, bigger co-operative societies and for income tax and VAT tax payers above a particular limit.
WHAT IS A STATUTORY AUDIT?
- The statutory audit is a type of audit which is mandatory by the Companies Law. It is also known as financial audit.
- The main motive behind the statutory audit is to make sure that the financial statements presented by the company display a true and fair view of the company’s financial position.
- Statutory audit is mandatory if certain criteria is being met by the business, it is carried out by independent external auditors.
- In India, the statutory audit is governed by the Companies Act. The purpose of statutory audit is to ensure the fairness and credibility of accounting records. Scope of work and functions of the statutory auditor are decided by the law.
Objectives of Statutory Audit:
- Audit is mandatory in case of a company because the shareholders are the owners of the company, however, they do not handle the routine activities of the business. The management of the company is done by its board of Directors. So the shareholders need an assurance that the accounts maintained are published by the company present a true and fair valuation of the business. Potential stakeholders also benefit from the statutory audit. They too take decision based on the audit reports which are accurate.
Advantages of a Statutory Audit:
- Statutory audit improves the reliability and credibility of the published financial statements.
- It enhances the trustworthiness of published financial statements.
- It improves internal control systems prevalent in the organisation like the auditor’s appointment, remuneration, duties are assigned by the provisions of the law.
Disadvantages of a Statutory Audit:
- The costs associated to a statutory audit can be very high.
- In order to answer the day to day query of the auditor or while providing the auditor any reports or data required to them may disturb the work of the client’s employees.
- There are certain limitations of audit like time, internal control systems prevalent in the organisations, etc. The auditors are watchdogs and not the bloodhounds. The reporting is based on sample data and not the total data.
- The auditor, at times, conducts test checking, which consist of in depth checking of only few selected items and form an opinion about the quality of the accounts.
- An auditor may comment upon the fundamental principle of going concern of the entity but doesn’t promise about its future possiblity. The shareholders and other probable stakeholders should not take any important decisions by only taking into account that the financial statements are audited.
