What is the Difference Between Internal Audit and Statutory Audit?
🆚 Go to Comparative Table 🆚The main difference between an internal audit and a statutory audit lies in their objectives, scope, and the level of independence of the auditors involved. Here are the key differences between the two types of audits:
- Objective:
- Internal audit: The objective is to evaluate and improve internal controls, risk management, and overall operational efficiency.
- Statutory audit: The objective is to verify that an organization's financial statements comply with accounting standards and regulations.
- Scope:
- Internal audit: The scope is broader, covering all business operations and controls.
- Statutory audit: The scope is narrower, focusing on historical financial data and compliance with accounting standards and regulations.
- Independence:
- Internal audit: Internal auditors are typically employees of the company or external consultants hired by the organization, which may lead to potential conflicts of interest.
- Statutory audit: Statutory auditors are appointed by a regulatory body or government agency and are required to adhere to strict ethical and professional standards, being completely objective and independent in their examination of financial statements.
- Reporting:
- Internal audit: Internal auditors report their findings to the management.
- Statutory audit: Statutory auditors report their findings to external stakeholders, such as shareholders.
- Frequency:
- Internal audit: Conducted on a regular basis, such as quarterly, semi-annually, or annually.
- Statutory audit: Conducted annually.
- Applicability:
- Internal audit: Voluntary.
- Statutory audit: Compulsory for all companies.
In summary, a statutory audit is an external compliance exercise, while an internal audit provides internal assurance to an organization's management. Both audits serve the purpose of examining an organization's financial records, but they differ in terms of their objectives, scope, and the level of independence of the auditors involved.
On this pageWhat is the Difference Between Internal Audit and Statutory Audit? Comparative Table: Internal Audit vs Statutory Audit
Comparative Table: Internal Audit vs Statutory Audit
Here is a table comparing the differences between internal audit and statutory audit:
| Particulars | Internal Audit | Statutory Audit |
|---|---|---|
| Meaning | Internal audit is an examination of a company's financial records and internal controls conducted by employees within the company or external chartered accountants. | Statutory audit is a legally required review of the accuracy of a company's financial statements, conducted annually by practicing chartered accountants or CA firms. |
| Objective | Provides management with tools necessary to attain operational efficiency and ensures compliance with relevant statutes and regulations. | Determines whether an organization provides a fair and accurate representation of its financial position. |
| Scope | Broader, covering analysis of accounts, processes, management, corporate governance, etc.. | Narrower, limited to inspection, spotting errors, and checking financial reports, accounts, and related documents. |
| Qualification | Internal auditor need not necessarily be a chartered accountant. | Must be a practicing chartered accountant or CA firm. |
| Appointment | Appointed by the organization's management. | Appointed by a regulatory body or government agency. |
| Frequency | Conducted regularly, such as quarterly, semi-annually, or annually. | Conducted annually. |
| Independence | Performed by employees within the company or external chartered accountants. | Conducted by an independent third-party auditor. |
Both internal and statutory audits follow the same procedural path—planning, research, execution, and presentation—and depend on the availability and access of clear, reliable, and accurate data.
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- IASB vs FASB