Statutory Audit

What is a 'Statutory Audit'

A statutory audit is a legally required review of the accuracy of a company's or government's financial records. The purpose of a statutory audit is the same as the purpose of any other type of audit: to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions.

BREAKING DOWN 'Statutory Audit'

For example, a state law may require all municipalities to submit to an annual statutory audit examining all accounts and financial transactions and to make the results of the audit available to the public. The purpose of such an audit is to hold the government accountable for how it is spending taxpayers' money.

Many government agencies participate in regular audits. This helps ensure any funds directed by the larger government entity, such as at the federal or state level, have been used appropriately and according to any associate laws or requirements for their use.

Being subject to a statutory audit is not an inherent sign of wrongdoing. Instead, it is often a formality designed to help prevent such activities, such as the misappropriation of funds, by ensuring regular examination of various records by a third party. The same also applies to other audits.

Understanding Statutes

The term statutory is used to denote the audit is required by statute. A statute is a law or regulation enacted by the legislative branch of the organization’s associated government. Statutes can be enacted at multiple levels, including federal, state or other municipality. In business, statute can also refer to any rule set forth by the organization’s leadership team.

Understanding an Audit

An audit is an examination of records held by an organization, business, government entity or individual. Generally, this involves the analysis of various financial records but can also be applied to other areas. During a financial audit, an organization’s records regarding income or profit, investment returns, expenses and other items may all be included as part of the audit process.

The purpose of a financial audit is often to determine if funds were handled properly and that all required records and filings are accurate. At the beginning of an audit, the auditing entity makes known what records will be required as part of the examination. The information is gathered and supplied as requested, allowing the auditing entity to perform its analysis. If inaccuracies are found, appropriate consequences may be levied.

RELATED TERMS
  1. Audit

    An unbiased examination and evaluation of the financial statements ...
  2. Continuous Audit

    An auditing process that examines accounting practices continuously ...
  3. Auditability

    The ability to achieve accurate results in the examination of ...
  4. Internal Audit

    The examination, monitoring and analysis of activities related ...
  5. Preaudit

    An accounting practice used prior to the official examination ...
  6. Auditing Standards Board - ASB

    The American Institute of Certified Public Accountants' (AICPA) ...
Related Articles
  1. Investing

    What's an Audit?

    An audit is an objective examination of accounting records that makes sure the records are a fair and accurate representation of the transactions they claim to represent.
  2. Personal Finance

    How Does An IRS Audit Work?

    It doesn't automatically mean an IRS agent will be ringing your doorbell. Here are the different types of IRS audits and how to handle them.
  3. Personal Finance

    Surviving The IRS Audit

    Keeping thorough records and knowing the penalties make this experience easier than you'd expect.
  4. Financial Advisor

    SEC Audit? No Problem (If You're Prepared)

    Audits are unwanted and unpleasant, but by getting your proverbial ducks in a row ahead of time you can ease and simplify the process.
  5. Investing

    A Day In The Life Of An Auditor

    If you like the idea of examining and attesting to a company's financial performance for a living, a career in auditing might be right for you.
  6. Managing Wealth

    Make $1 Million? Expect an Audit

    If you make $1 million or more, the IRS has its eyes on you. Here's what you can do about it.
  7. Personal Finance

    How to Avoid the 6 Most Common Tax Audit Triggers

    These are the most common scenarios that can trigger the IRS to audit a tax return.
  8. Investing

    Examining A Career As An Auditor

    Stricter government regulations have put auditing professionals in demand.
  9. Markets

    Audit the Fed: Is Trump Right? (JPM)

    Find out why Donald Trump has a point when he claims it is vitally important to audit the Federal Reserve, the central banking authority in the United States.
  10. Investing

    10 Tips for Avoiding a Tax Audit

    To help you avoid a tax audit this year make sure you stay away from these ten red flags.
RELATED FAQS
  1. What should I do to prepare for an IRS audit?

    Find out how to prepare for an IRS audit, what kinds of audits you might face and what kinds of habits you should develop ... Read Answer >>
  2. What is an IRS letter audit / audit by correspondence?

    Learn about IRS letter audits, how tax returns are selected for audits and the common outcomes in the letter audits conducted ... Read Answer >>
  3. Can the IRS audit you after a refund?

    Learn how the U.S. Internal Revenue Service (IRS) can conduct a tax audit even after a taxpayer was issued a tax refund in ... Read Answer >>
  4. What's the average salary of an audit clerk?

    Learn how much audit clerks earn per year on average, and review what these finance professionals and others in similar fields ... Read Answer >>
  5. Are IRS audits random?

    Learn about how the U.S. Internal Revenue Service (IRS) conducts its tax audits based on random selection, document matching ... Read Answer >>
  6. How is the Federal Reserve audited?

    Learn how the Federal Reserve gets audited. Due to gridlock, the Federal Reserve has been forced to take on the role of stimulating ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center