Definition
A statutory audit is an examination of a company’s financial statements and related operations as required by law, specifically according to the Companies Act. The primary objective is to provide an independent opinion on whether the financial statements present a true and fair view of the company’s status. Auditors are responsible for reporting their findings to the company’s members during a general meeting.
Examples
- Annual Audits for Public Companies: Publicly held companies in the UK must undergo a statutory audit annually to comply with the Companies Act.
- Private Companies Threshold: If a private company’s turnover is above £6.5 million or its balance sheet totals more than £3.26 million, it must undergo a statutory audit unless exempted otherwise.
- Financial Institutions: Banks and other financial institutions typically require statutory audits to comply with government regulations and instill confidence among their stakeholders.
Frequently Asked Questions
What is the purpose of a statutory audit?
The main purpose of a statutory audit is to provide assurance that the financial statements are free from material misstatement and accurately represent the financial position of the company.
Who requires a statutory audit?
All public companies, and certain private companies that exceed specific turnover and balance sheet thresholds, are required to undergo a statutory audit according to the Companies Act.
What are audit exemptions for small companies?
Small companies with a turnover of not more than £6.5 million and a balance sheet total of not more than £3.26 million may be exempt from statutory audit requirements. This exemption aims to reduce the financial burden on small businesses.
How often must a statutory audit be conducted?
A statutory audit must be conducted annually in alignment with the company’s financial year-end and general meeting schedule.
Who conducts a statutory audit?
Independent external auditors, who are typically certified public accountants, conduct statutory audits to ensure objectivity and independence.
Related Terms
Auditors
Independent professionals responsible for assessing financial records to ensure accuracy and compliance with statutory requirements.
Companies Act
A body of law that governs the incorporation, management, and operation of companies in the UK.
Small Company
A company eligible for certain exemptions under the Companies Act due to its smaller size in terms of turnover and balance sheet total.
Turnover
The total sales or revenue generated by a company during a specific period.
Balance Sheet
A financial statement that reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
Audit Exemption
A provision allowing small companies to be exempt from statutory audit requirements to reduce compliance costs.
Online References
- The Companies Act 2006
- The Institute of Chartered Accountants in England and Wales (ICAEW)
- Gov.uk Statutory Accounts and Audits
- Financial Reporting Council (FRC)
Suggested Books for Further Studies
- “Auditing and Assurance Services” by Alvin A. Arens, Mark S. Beasley, and Randal J. Elder
- “Principles of External Auditing” by Brenda Porter, Jon Simon, and David Hatherly
- “The Essentials of Auditing” by Robyn Moroney, Fiona Campbell, and Jane Hamilton
- “Audit and Assurance – Principles and Practice” by Graeme W. Pendlebury and Jeffrey Ridley
Accounting Basics: “Statutory Audit” Fundamentals Quiz
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