Internal Audit vs Statutory Audit
Internal audit is an internal control function reporting to management or the audit committee. Statutory audit is an independent external examination required by law, reporting to the shareholders.
The quick answer
The distinction is who appoints, who receives the report, and what the objective is. Internal audit serves management's control needs; statutory audit serves the shareholders' need for an independent opinion.
Side-by-side comparison
| Basis | Internal Audit | Statutory Audit |
|---|---|---|
| Requirement | Required for specified classes of companies | Mandatory for all companies under the Companies Act |
| Appointed by | The board or management | The shareholders, on the board's recommendation |
| Reports to | Management and the audit committee | The members or shareholders |
| Objective | Evaluate and improve internal control, risk and governance | Express an opinion on the truth and fairness of financial statements |
| Scope | Determined by management; ongoing and continuous | Determined by statute and auditing standards; periodic |
| Independence | Independent of the activity audited, but internal to the entity | Independent of the entity entirely |
The exam angle
A recurring question asks to what extent the statutory auditor may rely on internal audit work. The answer requires evaluating objectivity, competence and the systematic approach of the internal audit function before deciding on reliance.
Related comparisons
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Talk to usCan a statutory auditor also perform internal audit for the same company?
No. Performing internal audit for an audit client creates a self-review threat to independence and is restricted under the applicable provisions and ethical requirements.
Can the statutory auditor rely on internal audit work?
Only after evaluating the internal audit function's objectivity, technical competence, systematic approach and quality control, and then performing appropriate procedures on the work used.
Which companies must have an internal auditor?
Specified classes of companies based on thresholds prescribed under the Companies Act and related rules. Confirm the current thresholds applicable to your attempt.
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