Every business has financial assets that must be maintained honestly and regularly audited by a professional to ensure that they are sound. An audit examines or reviews a company’s or institution’s financial accounts. The procedure must that a company or institution accurately reports its financial information.
What is Audit?
Employees of certain company departments might complete the audit procedure. In technical terms, this is an ‘internal audit’. The auditing process is referred to as an ‘external audit’ if it is carried out by an auditor who is not affiliated with the company.
Externally checking the financial situation, institution, or form aids in validating the accuracy of financial records and information provided by the personnel of the company. When the audit is done outside, the risk of fraud or giving erroneous account information by the firm’s workers is greatly minimized. An external auditor is required to audit the accounts of public firms. Before a quarter’s results are announced, this must be completed.
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What Is Statutory Audit?
Statutory audits verify the accuracy of financial statements and information presented by a company or government. A Financial audit aims to determine whether openness is maintained when a company/the Indian government submits financial information, such as bank balances and accounts.
How Do Financial Audit Work?
A statute is a piece of legislation that has been enacted by a government entity that has the authority to devise laws in a specific area. The term statutory denotes that the audit is required by law. The impact of a statute might range from minor to major. It can take place at the federal, state, or municipal levels. Members of a Company’s Board usually write the regulations for the company’s governance. A statutory audit informs the auditor on the accuracy of a company’s filed financial records.
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What is Management Audit?
A management audit meaning is the thorough review of a company’s activities and performance. It helps check how well the company is doing in various areas.
The main goal of a management audit is to find mistakes in management and suggest ways to improve. It helps the management team run the company more efficiently and effectively.
In simple terms, a management audit looks at how well the management system works and reviews different departments or the whole company. It includes checking systems, procedures, responsibilities, data quality, and the quality of staff.
Purpose Of A Management Audit
A good business always has a good management team. The more competitive a company’s management potential is, the higher the chances that it will produce significant profits. As a result, a management audit is conducted to determine how efficient a company’s management health is.
How Is A Management Audit Conducted?
When the Board of Directors oversees the compensation team, they examine the CEO’s performance. They gather numerical and qualitative information such as acquisition integration efforts.
The following are some of the roles of a Management Auditor:
- Examining the management’s administrative hierarchy and setting.
- The state of the association’s relationships among its personnel.
- The efficiency of the staff recruitment and retention process.
- The financial faction’s protocols and practices and how frequently they are followed.
- There are currently available training programs for current employees.
- The management faction’s assurance that the company is an excellent corporate citizen.
- The management’s preparation of the company’s yearly financial budget.
- The firm’s IT systems are being upgraded.
- The management faction’s responsiveness to its stakeholders.
- The management faction’s strategic leadership of the company toward its developmental aims.
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Significance of Management Auditing
Following are some of the key importance of management auditing:
- Coordinating with staff aids management in formulating strategies and objectives to fulfill the management set objectives efficiently.
- It assists in developing budgets and optimized ways of utilizing resources. It thus involves assistance in coordinating multiple departments to obtain the most efficient internal structure feasible. It may reveal weaknesses in the members of the Board of Directors and incompetence in managerial functioning and execution.
- It can also help determine if the company is staggered by a disrupted management style.
- Determine the inadequacy of the MIS.
It is crucial to highlight that completing management audits for all companies is not an obligation. However, it is regarded as an essential instrument for the continual appraisal and review of an enterprise’s procedures, leading to enhancing the effectiveness of the company by making it fulfill its targets and profits.
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Difference Between Statutory Audit and Management Audit
| Financial Audit | Management Audit | |
| Definition | The purpose of a financial audit is to check and confirm a company’s financial information by looking at its financial records for a certain period. This specific review process is called a financial audit. | The purpose of a management audit is to check if a company’s daily activities are efficient and follow ethical standards. |
| Statutory/non statutory | A financial records audit is legally required. | Management audits are not required by law. |
| Importance | To make sure an organization’s accounting methods follow established rules, to accurately show its financial performance, and to give a clear picture of its current financial health, a financial audit must be done. | A management audit checks the processes, procedures, and policies of an organization to find ways to improve. It offers suggestions for better practices and helps understand the current situation. |
| Person doing the audit | To carry out an audit, businesses usually hire independent chartered accountants to review their financial records. | Every business has a management team, and this team is usually in charge of carrying out management audits. |
| Interval | The business’s financial records are checked at the end of each fiscal year through an audit. | The company has a plan to do management audits regularly, and they always finish them on schedule. |
Who Is Qualified To Conduct An Audit?
Whether the audit is internal or external, it is conducted by professionals who might be independent contractors or employees of the firm. A Chartered Accountant belonging to The Institute of Chartered Accountants of India (ICAI) performs audits in India. Chartered Accountants that are members of this association are responsible for conducting independent audits of businesses. The procedure to conduct an audit is divided into four stages.
The first step is to figure out what the auditor’s job entails. In this situation, the firm, or client, makes a contract with them. Numerous engagement phrases are included in the letter.
The second step deals with audit planning. The plan includes all minor and significant information, such as the audit’s completion timeline and the many agencies the audit will cover. The audit can focus on a single department or several at once. An audit takes a day typically to complete. However, the audit can take up to a week in some situations.
The third and most crucial stage is to compile all the information gathered throughout the entire audit. The information is generally included in a report prepared by the auditor once the audit is completed. In a well-structured report, the auditor must include all relevant and critical information from the audit. The audit’s results must be presented as the final phase.
Conclusion
The entire essay summed up what and how audits entail for an Indian company. The state of management and statutory audits is crucial for determining a firm’s financial accountability and transparency. In addition, the laws vary with the types of audits that a company is required to conduct. A management audit is not compulsory, while a statutory is mandated to be performed by law, and each of them has its benefits. The Board of Directors, too, has a role to play during these audits. It must comply with the norms of the auditing entities.
FAQs
What is the difference between Statutory Audit and Internal Audit?
Statutory audit and internal audit serve different purposes. A statutory audit happens each year to check and give an opinion on a company’s financial statements. On the other hand, an internal audit is conducted to catch mistakes and fraud before they become bigger problems.
Statutory auditors are chosen by the shareholders of the company. Meanwhile, internal auditors are selected by the company’s management.