Statutory Audit and Internal Audit: What’s the Difference?

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Statutory Audit and Internal Audit: What’s the Difference?

Since your company has to keep detailed records of past and present financial transactions for future reference, it is the duty of various accountants verified for statutory audit and internal audit to prepare such financial statements. Generally, a Statutory Auditor performs the statutory audit while Internal Auditor is responsible for doing the internal audit. Therefore, a company’s Statutory Auditor cannot perform the functions of an Internal Auditor and vice versa. In Singapore, the Accounting and Corporate Regulatory Authority (ACRA) is the authority that governs the laws and regulations of Statutory Audit in companies.

As per the provision of the Company Act, you need to carry out Statutory Audit to ensure that all the financial details of your company are credible without any misstatement or discrepancies. Reports regarding this external audit are usually submitted to the shareholders. On the other hand, Internal Audit is overseen by the management itself to ensure that your company is compliant with the specified in-house rules and regulations. It is not mandatory and it is the choice of the management of your company to get it done by its internal auditors.

Overview of Opportunities of a Statutory Auditor

Statutory Auditors are usually employed in the National Audit offices. They are responsible for carrying out mandatory audits in public sector companies and governmental bodies. Furthermore, they conduct audits in a number of private companies on behalf of the shareholders.

It is also important to note that a number of private firms provide statutory audit services to their clients. Several companies hire experienced Statutory Auditors to manage most of their audit-related functions. One of the common job profiles offered by various organizations to independently manage the statutory audit function is the Director Statutory Auditor.

Overview of Opportunities of an Internal Auditor

Internal Auditors can find lucrative opportunities in the private accounting firm which performs internal auditing for the companies. They can also work in the accounting department of various private companies. High profile organizations employ only experienced internal auditors having exceptional skills in verifying the financial documents.

Generally, the role of an internal auditor is to provide independent assurance that a company’s risk management, governance and internal control processes are operating effectively. They can specialize in certain fields according to their experience and interest.

Specific Differences between Statutory Audit and Internal Audit

Appointment

Statutory Auditors are predominantly appointed by the shareholders of a company. However, in some cases, they can be appointed by the company directors or the government. On the other hand, Internal Auditors are appointed by a company’s management. Furthermore, it is mandatory to appoint a statutory auditor as stipulated by the Companies Act, but the appointment of Internal Auditors is non-compulsory.

Qualifications

Even though it is required that Statutory Auditors must be certified chartered accountants, this provision does not apply to Internal Auditors as the management may appoint individuals it considers fit for the job. Therefore, Internal Auditors do not need to possess specific qualifications as laid down in the Company Act, but Statutory Auditors must have those qualifications.

Status of the Auditors

While Statutory Auditors are independent employees from an independent body, Internal Auditors are part of the workforce of a company.

Objectives of the Audit 

The main aim of Statutory Audit is to report whether a company’s balance sheet as well as the profit and loss account meet a specific set of regulations set by the law. An internal auditor aims to examine whether a company has committed any error or fraud and rectifies it in time.

Timelines of the Audit Process

Generally, a Statutory Audit is conducted after a company prepares its final financial accounts, while an Internal Audit is a continuous audit, meaning, it is carried out on regular or irregular intervals in the course of the financial year to review various transactions in the balance sheet as well as the profit and loss account.

Scope of Work

When it comes to Statutory Audit, the scope of the work and responsibilities are determined by law. On the other hand, the scope of work of Internal Auditors is determined by the management of your company. Furthermore, the scope of duties of Internal Auditors can be reduced while those of Statutory Auditors cannot be altered.

Reporting

Statutory Auditors must prepare reports after the completion of work detailing the facts found during the audit and present it to the appointing authority, particularly shareholders. On the other hand, internal auditors do not have to submit any report to the shareholders, but they give suggestions to improve identified weaknesses.  

Attendance of Meetings

Statutory Auditors have the right to attend the shareholders’ meeting while Internal Auditors have no such rights. 

Removal/Dismissal

Statutory Auditors can be removed or dismissed only by the shareholders and not by the management or the directors, while Internal Auditors can be removed or dismissed by the management or the directors of a company. Once appointed, it is extremely difficult to remove a statutory auditor as the management has to seek approvals from the central government, along with recommendations of the board of directors for it to take effect.

Conclusion

Even though Statutory Auditors and Internal Auditors do the same job, their specific objectives are different. To stay safe at all times, hiring a professional firm to handle the audit function of your business is the ideal way of keeping updated records of your financial transactions for future reference, and checking your business accounts as per the law. Tianlong Services Pte Ltd has the capacity to review all the financial records of your company since our auditing system is updated with the latest auditing standards of Singapore.

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