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Be it a small mom and pop business, a retail chain, a Fortune 500 company, a government programme or a financial agency, all of them require regular, strategic, and comprehensive audits to track an organisation's financials. Below are the major differences between regulatory audit, statutory audit & performance audit:
Regulatory Audit
A regulatory audit aims to verify that a project is compliant with regulations and standards. Best practices of NEMEA Compliance Centre describe that a regulatory audit has to be accurate, objective, and independent with oversight and assurance to the organisation.
Statutory Audit
A Statutory Audit is a review of the accuracy of a company's or government's financial statements. Its purpose is to determine whether an organisation provides a fair and accurate representation of its financial position. It involves examining bank balances, bookkeeping records, and financial transactions.
The term, "statutory" refers to a decree, act, or regulation related to the state, national, or international laws. These legal requirements are mandates that entities need to follow for the sale of their products or services.
Example: Safety requirements for sports helmets; helmets need to meet a certain level of testing to be safe for customer use, and any company that produces helmets needs to ensure that their products meet these mandatory requirements.
How Statutory Audits Work
A national statute/law requires a statutory audit. In business, a statute refers to a rule set by the organisation's leadership. During a financial audit, an organisation's financial records on profit, investment returns, expenses, and other items. A Financial Audit determines if funds used correctly and if all required financial documents are accurate.
In the beginning, the auditor/ auditing team requests known documents for examination. The documents are supplied to auditors as requested so that they can perform the audit. If there are inaccuracies, appropriate consequences from penalties to jail time apply.
Having a statutory audit is not a sign of wrongdoing or criminal activity. Instead, it is a formality to prevent white-collar crime like fund misappropriation.
Performance Audit
A performance audit is the independent assessment of an entity's operations to investigate the performance of specific business programs. Performance audits are associated with government agencies at all levels as most government bodies receive federal funding.
Understanding Performance Audit
In government, a performance audit examines the efficiency and effectiveness of a program to implement improvements. GAGAS, a programme that refers to government assets and agencies goal is to provide objective data that reduce costs and make business improvements. The federal government of every country lays out the standards for audits.
The specific objectives of a performance audit can vary from business to business. They include effectiveness, economy and efficiency of a company's program and compliance with legal requirements. An audit's scope is to determine financial fraud and wasteful processes that is a hindrance to the objectives of the programme.
Performance Audit Standards
General standards cover areas of professional judgment, quality control, and competence. It aims to ensure the auditor is independent, capacity, and abides internal quality controls. Field standards apply to planning, gathering evaluation material and preparing the required documentation, and seeks to outline the auditor's objectives, procurement, and operations. Reporting Standards relate to the report's content and communication.
Value of Performance Audits
After the completion of a performance audit, the authors deliver their findings to the company's management. Its goal is to use its results to implement any changes to improve processes that will help them achieve the stated purposes. The company conducts a follow-up performance audit to find whether the management has implemented the audit findings.
The value of an audit does apply to the management and also to the board of directors, as they can see if specific company programs are worth their investments and make informed board votes.
Business Audits
Performance audits are implemented in business and follow many of the same stated goals and procedures of a financial government agency. In the investment world, a performance audit is conducted by a company asset manager or by an outside accounting firm to verify company performance figures shown to the public.
If you are in search of a professional firm for auditing services of your company or availing any other financial services such as accounting services or tax-related services then JAXA Chartered Accountants can help you. Conduct your company's audits with 100% privacy and security. For any more information about the various services JAXA provides, feel free to Contact Us. We will be happy to help.
