There are several advantages in having a statutory audit, but
there are also some limitations.
Advantages of statutory audits
An statutory audit
offers the following benefits:
- It enhances the trustworthiness of published financial statements.
- It ensures the management that they have performed their statutory duties appropriately.
- It gives assurance to management that they have complied with non-statutory requirements, such as corporate governance requirements .
- It gives view on the efficacy of internal controls. Where internal
controls are weak or inadequate, the auditor will provide
recommendations for improvement. This will help management in reducing risk and
improving the performance of the company. Even where a statutory audit is not required, for example due
to small company statutory exemption limits, an audit will boost the trustworthiness
of published financial statements. This may be important for potential investors
to the company. Potential investors, such as banks, may insist on the company
having an audit as a precondition for lending money.
Limitations of statutory audits
The main limitations of an audit are as follows:
- The expenditure of an audit can be very high. However, if the audit firm is already hired to carry out non-audit work such as accounts preparation oradvisory work, the additional cost of an audit may be fairly small.
- The disruption caused to a company’s staff during the audit. The company’s staff may be required to support the auditors by answering questions, providing documents and other information, and so on.