Statutory vs Non-Statutory Audits
Audit is a word that will be familiar to most business owners, referring to a number of potential evaluations that can help you fine tune your operation and get your house in order financially.
In the UK, the landscape of financial scrutiny is marked by two primary types of audits: statutory and non-statutory. Both play critical roles in ensuring the transparency, accuracy, and reliability of financial statements.
However, they serve different purposes and are governed by distinct sets of rules and guidelines. This blog aims to demystify these two types of audits, offering clarity to business owners, finance professionals, and anyone interested in understanding the nuances of financial audits in the UK.
What is a Statutory Audit?
A statutory audit is a legally required review of the accuracy of a company’s or organisation’s financial records. The requirement for a statutory audit is determined by specific criteria set out in the UK Companies Act 2006. Generally, a statutory audit is mandatory for public companies, banking institutions, insurance companies, and certain types of private companies that exceed certain thresholds in terms of turnover, balance sheet total, or number of employees.
Purpose and Importance
The primary purpose of a statutory audit Glasgow is to protect shareholders, investors, and the public by providing an independent assessment of the financial statements. It ensures that the financial statements give a true and fair view of the company’s financial performance and position. This helps in maintaining confidence in the financial reporting process and in the markets.
Who Performs Statutory Audits?
Statutory audits are conducted by qualified auditors or audit firms that are registered and regulated by recognised supervisory bodies in the UK, such as the Institute of Chartered Accountants in England and Wales (ICAEW) or the Association of Chartered Certified Accountants (ACCA).
What is a Non-Statutory Audit?
In contrast, a non-statutory audit is not required by law but is undertaken for other reasons. These audits are performed to meet the specific requirements of third parties, such as banks, creditors, or potential investors, or for internal management purposes.
Purpose and Importance
The primary purpose of a non-statutory audit is to provide assurance to interested parties who require an audit for reasons other than statutory compliance. For example, a non-statutory audit might be conducted to assess the financial health of a business before a sale or merger, or to satisfy the requirements of lenders. Although not mandated by law, non-statutory audits can be invaluable in providing credibility and confidence to various stakeholders.
Who Performs Non-Statutory Audits?
Like statutory audits, non-statutory audits are typically carried out by qualified auditors or audit firms. However, since these audits are not regulated by the same legal standards, there is more flexibility in choosing an auditor. Despite this flexibility, businesses often opt for auditors with recognised qualifications to ensure the quality and reliability of the audit.
Non-statutory audits can be more flexible, allowing the scope to be adjusted to meet the specific needs of the stakeholders involved.