What is a Statutory Audit
A statutory audit is a legally required review of the accuracy of a company's (or government's) financial statements and 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.
For example, a state law may require that all municipalities 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 local 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 competent third party. The same also applies to other types of audits.
BREAKING DOWN Statutory Audit
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 or board of directors.
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.