Statutory audits are audits that a company has to conduct to comply with local laws and regulations. Failing to comply with the laws can lead to penalties and hence a decline in the credibility of your organization
In most countries, the law requires companies to conduct audits and present their financial statements accurately to the designated authority. Professional auditors perform the function because local laws require it.
This article aims to throw light on the advantages and disadvantages of statutory audits
Advantages of Statutory Audits
Audits serve multiple functions in favor of your organization. A statutory audit enables the auditors from the government to examine the financial statements of your organization and assess their objectivity and independence. To prepare your accounts and books for the external audit, you need to seek an independent resource for auditing.
The advantages are as follows:
Improves Credibility of Published Finances
Every business needs to maintain a good image and credibility among the target customers and the market in general. Every company publishes and makes available its financial statements to the public entity or government institution concerned with the audits reports. When the audits have been conducted, the financial statements are free of any misrepresentations and inaccuracies.
In this way, investors, clients, and business partners trust more than before. Thus, statutory audits pave the way from your company to improve its credibility with the help of accuracy in published finances
Ensures the Management Performs its Duties
Audits are not only about the accounts, but these also involve an analysis of the internal processes and the performances of various departments in the company. The auditor from one of the top audit firms in Dubai will look into the policy framework, and identify the shortcomings of the management.
In this way, statutory audits can help you ensure that the management of your company is appropriately performing its job.
Monitors the Efficacy of Internal Controls
Auditors are experts in assessing the efficacy of corporate governance and internal controls of an organization. When they are studying, monitoring, and analyzing your business function, and the work processes, they compare it with your policies. They identify the loopholes in the policies and the shortcomings in their implementation.
With the weaknesses, they also come up with suggestions and recommendations for the improvement of the business process in general and compliance with the local laws specifically. Thus, conducting audits for compliance with laws and statutes is highly beneficial for your organization in a multitude of ways.
Disadvantages of Statutory Audits
Audits inspect each and every component of your business process and thus help in the improvement of processes and policies. But audits are seen as a hassle by many organizations, and rightly so. Two of the primary limitations stemming from audits are as follows:
Audits can be costly, especially if you are outsourcing an audit firm only for the statutory audit period. What you can do is to keep an accounting and bookkeeping resource in the loop throughout the year, for the non-audit work. This non-audit work includes account preparation and advisory work.
When all the books and accounts are in shape and order, with their fairness and accuracy intact, you won’t have to bear heavy expenses of audit. The additional costs after the preparation of accounts and assessment of internal control are very small.
Disruption for the Regular Staff
The scope of audits goes beyond the accuracy analysis of financial statements. Audits involve the assessment of non-financial matters simultaneous with financial issues. These assessments and evaluations involve a copious amount of scrutiny and questioning from employees at all levels. The staff has to answer questions and support the auditors.
The employees also need to show documents and provide briefing pertaining to matters of concerns of the auditors. All of this is a source of disruption for the employees and their regular work. This is a significant limitation of statutory audit, but the audit still doesn’t lose its significance.
Statutory Audits are Essentially Important!
Statutory audits are important to conduct for a number of reasons. First and foremost is the requirement by law. Besides being a legal or regulatory requirement for your company, audits serve many benefits. They help ensure that the management is performing its job in an adequate manner and that the internal controls are not dysfunctional.
Audits help the management by providing assurances in the matters of corporate governance and non-statutory audits as well. The credibility of your brand and business improves, and most importantly, you get suggestions and recommendations for the shortcomings, if any, in your business process.
You are thus able to reduce the risk of penalties resulting from non-compliance and consequently to improve the performance of your business. The banks and potential investors will eye you as a more credible business to engage with. Do hire professional auditors!