A statutory audit is performed as per the provisions
specified by company act. On the other hand, an internal audit is carried out
by a designated company staff. It is his sole duty to identify flaws in the
accounting system, book keeping procedures, and suggest improvement if there is
any. From the above definitions, you will realize that both audits are quite
similar in terms of checking books, identifying flaws and frauds. However, there
are some specific differences between these two audits. Let us take a close
look at some of the key differences.
Appointing
Authority
Based on the appointing authority these two audits
are separate in nature. A statutory auditor is chosen in Annual General
Meeting. Also, company stakeholders can appoint a statutory auditor in a
pre-scheduled meeting agreed by most of the board members. On the other hand,
management of a company has the sole discretion of appointing an internal
auditor.
Eligibility
Criteria
A statutory auditor must be eligible to perform his
duties as per the company act specification. But internal audit services
offered by internal auditors are not bound to any stringent eligibility
criteria. He can be appointed as per general provisions mentioned by law for
appointing company auditors.
Nature of Work
A statutory auditor is designated to check company
accounts and supporting documents related to those accounts. However, an
internal auditor’s job is not limited to checking books and evidences. He can
audit other activities of a company in order to identify flaws and suggest
necessary improvements.
Preparation of
Audit Report
In a statutory audit, the auditor must prepare
relevant reports after the completion of audit. The report must be prepared
based on the information found during his audit. He should then submit the report
to the respective appointing authority. Now, in case of internal audit, the
auditor is required to give his expert suggestion on improving the internal flaws
though it is not obligatory for him to present a report to the management.
Legal Value
Statutory audit is performed for specific legal
requirements of a company whereas internal
audit services are purposed only for company management. Reports or suggestions
as presented by an internal auditor have no legal values.
Routine of
Conducting Audit
A statutory audit has no specific routine of
conduction. It can be called upon when relevant situation comes in. However, an
internal audit is regular in nature. A company can set specific schedules for
internal audit.
Dismissal of
Auditor
A statutory auditor can only be dismissed in the
company’s annual general meeting whereas an internal auditor can be discharged
off his duties by the management.
Dependency
Factor
A statutory auditor is independent as he is
appointed by company stakeholders. He can carry out his duties as per his own
excellence and provisions. But an internal auditor is appointed by company
management so he is a subordinate staff. Therefore, he is questionable to the
management.
Compensation
Criteria
As a statutory auditor is selected by stakeholders,
his compensation is set after a mutual agreement by the stakeholders. On the
other hand, management decides the compensation for an internal auditor.
Now, you will be able to easily differentiate these
two types of audits as you know the key differences.