Key Differences between Statutory Audit and Internal Audit Services

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.