What is a Statutory Audit?

A statutory audit is an examination of an entity's financial records in accordance with the requirements of a government agency. A number of organizations must undergo statutory audits, including banks, brokerage firms, insurance companies, and municipalities. These entities must undergo statutory audits because they are subject to a certain amount of governmental oversight. The scope of each of these audits is set by the government agency that is requiring it, so the outcome may not necessarily conform to the requirements of generally accepted auditing standards. The intent of these audits is to find out if a targeted business is producing fair and accurate financial statements; this is done through a detailed review of their bookkeeping records and supporting source documents.

Examples of Statutory Audits

Here are several examples of statutory audits:

Banking sector audit. Banks in India are required to have statutory audits under the guidance of the Reserve Bank of India (RBI). The audit ensures compliance with the Banking Regulation Act and evaluates the financial health of the institution.
Insurance company audit. An insurance company in the European Union is required to have an audit under the Solvency II Directive. This statutory audit ensures that the company has adequate financial resources to cover claims and liabilities.
Non-profit audit. Charitable organizations in the United Kingdom must undergo statutory audits if their income exceeds a certain threshold, as mandated by the Charities Act.
Government entity audit. Local government entities in the United States are subject to audits under the Single Audit Act if they expend $750,000 or more in federal funds annually.
Pension fund audit. In Australia, self-managed superannuation funds must undergo statutory audits annually as required by the Superannuation Industry (Supervision) Act.
Public utility audit. Utility companies in Canada must submit to statutory audits as required by the regulatory body, such as the Ontario Energy Board.
Educational institution audit. Universities in countries like South Africa must have their financial statements audited as per the Higher Education Act.

What is the Frequency of a Statutory Audit?

The frequency with which statutory audits must be conducted is set by the government agency that requires the audit. The normal interval for this audit is once a year.

Are there Exemptions from Statutory Audits?

Smaller organizations that fall below a minimum threshold are generally exempt from statutory audit requirements, on the grounds that they cannot afford the cost of the audit.