A statutory auditor is an independent third party hired a company to audit its books or other activities in accordance with the law. In general, an auditor examines a company’s accounting practices to see if they meet minimum standards. The statutory auditor is sometimes hired the board of directors’ accounting committee, and other times he or she is hired directly the board of directors. It is unusual for a corporation’s management to hire this auditor.
Normally, the statutory auditor audits the corporation’s accounting practices once a year. The most important accounting activities, internal controls, and reporting procedures are all covered in this review. The audit compares the company’s activities to best practices in the country where it is based. The auditor must then present a report to the board of directors’ audit committee or to the entire board of directors.
An auditor collaborates closely with the company’s management to gather the information needed to complete the work. Because the statutory auditor must always be considered independent, each auditor is cautious in the relationships he or she develops with company management. To ensure the statutory auditor’s independence, some audit committees and boards of directors place restrictions on any additional work the auditor may do for the company.
Auditors complete all work in accordance with best accounting practice standards as well as any applicable legal requirements for certified public accountants. Certified public accountants make up a large percentage of statutory auditors. The qualifications for a statutory auditor differ depending on the jurisdiction. In order to conduct corporate audits in some jurisdictions, the auditor must be licensed in that jurisdiction.
When an audit firm begins working with a company on any external audit work, the firm rarely receives additional work from that company. Internal company regulations or the board of directors of each company govern what additional work, if any, a firm may contract with the company to perform. To specialize in this type of work, most statutory auditors have extensive experience with external corporate audits.
To certify their financial reports, some companies hire an auditing firm. This certification is usually done statutory auditors. A review of the company’s financial situation and annual financial statements is completed the external auditor. After that, the auditor signs off on the company’s annual financial statements, including the report’s findings. This external report is typically included in the company’s annual shareholder report.