An audit is a basic requirement as well as a need of a business organization. It helps the authorities identify the risk factor, assess their operationality, and boost control and compliance of the organization to ensure its growth and achievement of business goals. Internal and external audits help organizations improve their functioning, but statutory audit often dreads them.
What is a Statutory Audit?
The statutory audit is the one required by law or some statute of the government authorities. This type of audit is conducted by the legal authorities, who check the business operations, controls, financial records, and transactions of any organization. Statutory audit is usually applicable to large business organizations. The purpose is to ensure that the organization follows fair practices according to the rules and regulation shared by the government authorities.
Keep scrolling down this article to explore a brief guide about statutory audits.
Checklist for Conducting Statutory Audit
An independent assessment and review of the financial statements, records, and position of an organization fall under the statutory audit. It is conducted by the auditors assigned by the government authorities. In the case of statutory audit, the organizations cannot refuse the process because it is initiated due to legal measures and statues and have to comply with the authorities.
Here is the commonly followed checklist for conducting statutory audits.
1. Observe Control Environment
The first point in the statutory audit checklist is observing the control environment of the organization. The regulatory guidelines followed by the organization that depicts the competitive strategy of the organization fall under the category of the control environment. The statutory audit can start at any time. Therefore, organizations often acquire the help of professionals from the top audit firms in Dubai to prepare well and ensure smooth and transparent functionality.
2. Test Internal Controls
Testing the internal controls is the next important point in the statutory audit checklist. The legally assigned auditors examine and review the internal controls of the organization to ensure that they comply with the rules and regulations defined by the legal authorities. If they do not comply with the legal requirements, the organization has to face legal repercussions and penalties.
3. Rank Controls and Risks
The next point in the statutory audit checklist is ranking the controls and risks of the organization. After checking the control environment and testing the internal controls, the auditors have to rank the controls and risks on the scale of low, medium, and high. The controls of an organization should be high while the risks should be low to perform efficiently during the audit and achieve higher business growth.
4. Audit Balance Sheets
One of the most important points in the statutory audit checklist is the audit of the balance sheets. In a balance sheet audit, the authorities check the share capital and application money, in addition to secured and unsecured loans acquired by the organization. The authorities also check the current liabilities, dues and returns, fixed assets, currents assets, inventories, and investment of the organization.
5. Audit Profit and Loss Account
Audit of profit and loss account is another component of the statutory audit. In this step, the legally assigned audit authorities check the industry benchmarks against the yearly comparison reports. They also review gross profit margin, trend analysis, equity, and assets return rates, direct and preliminary expenses to develop a detailed overview of the profit and loss account of the organization.
6. Audit Tax Deducted at Source
One of the most important points of the statutory audit checklist is the audit of tax deducted at the source. In this, the authorities check the payments to review if they really fall under the category of tax deducted at source or not. In addition to it, they check the voucher entries, source documents and reconcile the records with challans.
7. Prepare Final Report
After checking, reviewing, and testing all of the above-discussed points, the government assigned auditors to prepare a detailed final report which shed light on each and every aspect of the operations of the organization. The report is often made public, which increases or decreases the interest of investors according to the results. You can hire experts from the top audit firms in Dubai to ensure all your operations and processes are in check to get a better review from legally assigned auditors.
Prepare well for statutory audit!
Statutory audit is initiated and conducted by the legally assigned government authorities. You cannot control or manipulate them if there is some issue with the audit report. You can only prepare well beforehand for the sudden statutory audit to get good remarks and reviews, which is impossible without the help of professional auditors. Hire expert auditors now to identify the issues in your business operations and fix them under the guidance of experts to make your operations smooth, transparent, and successive.