A Detailed Comparison Between The Internal Audit And The Statutory Audit
An internal audit is always carried out in a business enterprise prior to the statutory audit. There exists some major difference between the two. This includes
- Main objective
- An internal audit type is a procedure conducted within an organization to verify the continuous entries or records made by the office staff on the business transactions.
- Whereas the statutory audit of organization employs an external auditor to check the financial records of their business and verify whether all the accounts including the profit and loss stick to the provisions of law and represent a fair view on the state of affairs of the business.
- IA is not a mandatory type
- In contrast to the above, the SA is really an unavoidable scheme for every business house included under the Companies Act.
- The person initiating the audit
- For the IA, the whole process is initiated by an employee who works in the organization or is appointed by the firm, especially for the auditing purpose. He may or may not be professionally qualified for auditing.
- Whereas, a qualified person is a must for SA.
- Relationship with management
- In the case of an IA, usually conducted by the employee of the business firm itself, he is answerable to the management for any queries regarding his audit work even if his duties and responsibilities are decided by the management only. Further, the management can also vary or even restrict the power and authority of the staff auditor.
- While this is not the case with a statutory auditor. His duties, responsibilities abide by the provision of law and is an independent character.
- Main duty
- It is the responsibility of an internal auditor to point out the structural irregularities observed within the procedural aspects of a business organization. Moreover, he can even recommend different ideas or strategies like the automated trading robot to rectify these errors or practice. Further, he can assure whether the financial actions of the company are in harmony with the accounting systems of the same.
- A statutory auditor is strictly concerned with the validity and lawfulness of the whole financial transactions of the enterprise. His work involves preparing or documenting a financial statement based on the business and financial functions of the organization.
However, at times the internal audit becomes helpful for the statutory audit. For example, when a confusion state arises on a particular data, the external auditor can quickly refer the internal audit documents to confirm it.