How INTERNAL audit is different from STATUTORY audit & Need For an Internal Audit?

I fully endorse well knitted and narrated submissions of Mr. Barkat Ali  and Mr. frank mwansa . Thanks

Internal Audit vs Statutory Audit

1. Appointment

An internal auditor is generally appointed by the management but statutory auditor is appointed by the shareholders or Annual General Meeting.

2. Legal Requirement

Internal audit is the need of management but it is not legal obligation but statutory audit is the legal requirement.

3. Qualification

An internal auditor does not required specific qualification as per the provision of law but qualification of statutory auditor is specified.

4. Conducting Of Audit

Internal audit is of regular nature but final audit is conducted after the preparation of final account.

5. Status

An internal auditor is a staff who is appointed by the management but statutory auditor is an independent [person appointed by the shareholders.

6. Scope Of Work

Internal audit is related to the examination of books of accounts and other activities of an organization but statutory audit checks the books of accounts and related evidential documents. So, scope of internal audit is vague but scope of statutory audit is limited.

7. Removal

Internal auditor can be removed by the management but statutory auditor can be removed by the annual general meeting only.

8. Remuneration

Internal auditor is appointed by the management; so remuneration is fixed by the management but remuneration of statutory auditor is fixed by the shareholders.

9.Report

Internal auditor needs to give suggestions to improve weakness but no need to present report but statutory auditor requires to prepare report after the completion of work on the basis of facts found during the course of audit and present such report to the appointing authority.

 Internal auditors are needed to help in the following areas:

Internal auditors are needed to help in the following areas:

•  Assess the effectiveness of the design and execution of the system of internal control and risk management.
• Assist management in the effective discharge of their duties. 
• Evaluate compliance with laws and regulations.
• Evaluate the reliability and integrity of financial and operational information.
• Provide recommendation for the improvement of operations.
• Help in safeguarding company assets and utilization of its resources. 

An Internal Audit is restricted to Internal confirmations. While Statutory Auditors can go externally to get confirmations.

Thank u for invitation

Something to bear in mind is that internal and external auditors often carry out their work using similar procedures. However, there are a number of fundamental differences between the two audit roles. A statutory audit is required by law. There is no regulatory or statutory requirement for internal audit, as such an entity will only carry out internal audit work if it considers the benefits sufficient to justify the cost.

Differences

1.External audit the role is to express an opinion on the truth and fairness of the annual financial statements. Internal audit role is to examine systems and controls and assess risks in order to make recommendations to management for improvement.

2. External auditors are appointed by shareholders while internal auditors by management.

3.External auditors duties are set by statute,while internal auditors duties are set by management.

4.External auditors report to shareholders while the internal auditors report to management.

The internal auditor  may be given specific responsibility for investigating suspected fruad or error by management and is likely to have much lower materiality thresholds.

Need for internal audit

1.Improvements in financial controls or operational controls within the entity

2.improvements in compliance with key laws and regulations.

3.improvements in the economy, efficiency or effectiveness of operations.

The existence of an internal audit department may enhance the reputation of the entity for sound corporate governance in the opinion of customers and investors.

I agree with the answers of Mr. Barkat ali and Mr. Frank

An internal audit is conducted by the permanent staff of the same office to detect weakness in system, procedures and for the improvement. But statutory audit is the act of checking books of accounts as per the provision of company act. Both of them check books of account, detect errors and frauds even though they have certain differences which are as follows:

1. Appointment

An internal auditor is generally appointed by the management but statutory auditor is appointed by the shareholders or Annual General Meeting.

2. Legal Requirement

Internal audit is the need of management but it is not legal obligation but statutory audit is the legal requirement.

3. Qualification

An internal auditor does not required specific qualification as per the provision of law but qualification of statutory auditor is specified.

4. Conducting Of Audit

Internal audit is of regular nature but final audit is conducted after the preparation of final account.

5. Status

An internal auditor is a staff who is appointed by the management but statutory auditor is an independent [person appointed by the shareholders.

6. Scope Of Work

Internal audit is related to the examination of books of accounts and other activities of an organization but statutory audit checks the books of accounts and related evidential documents. So, scope of internal audit is vague but scope of statutory audit is limited.

7. Removal

Internal auditor can be removed by the management but statutory auditor can be removed by the annual general meeting only.

8. Remuneration

Internal auditor is appointed by the management; so remuneration is fixed by the management but remuneration of statutory auditor is fixed by the shareholders.

9. Report

Internal auditor needs to give suggestions to improve weakness but no need to present report but statutory auditor requires to prepare report after the completion of work on the basis of facts found during the course of audit and present such report to the appointing authority.

Statutorty audit is for complying with the relevant compliance of the country’s Company law board etc., whereas internal audit gives value addition to the company. For instance, it helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

Internal Audit specifically address GRC within an Organization evaluating Internal Controls and Deficiencies thereto, whereas statutory audit is about Compliance with the Regulations and ascertaining accuracy of financial records.

Thank for invitation  .................. I agree with the answers