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What Does a Statutory Auditor Do?

Statutory auditors often create an external report that is included within the company’s annual report.
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  • Written By: R. Kimball
  • Edited By: Daniel Lindley
  • Last Modified Date: 27 September 2014
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A statutory auditor is an external auditor appointed by a company to audit its books or other activities as required by law. Generally, this auditor reviews a company’s accounting practices and determines if they meet minimum requirements. Sometimes the statutory auditor is hired by the accounting committee of the board of directors; at other times he or she may be employed directly by the board of directors. It is rare that management of a corporation would hire this auditor.

Normally, the statutory auditor reviews the accounting practices of the corporation each year. This review includes the most important accounting activities, internal controls, and reporting procedures. The auditor's review compares the company’s activities to best practices as found in the country in which the company is located. The auditor must then present a report to the audit committee of the board of directors, or directly to the board of directors.

An auditor works closely with the management of the company to gather information necessary to complete the required work. Each auditor exercises caution in the relationships he or she develops with company management because the statutory auditor must always be considered independent. Some audit committees and boards of directors limit any additional work that the statutory auditor may do for the company in order to ensure the auditor’s independence.

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Auditors complete all work in accordance with best practice accounting standards and any legal regulations for certified public accountants. Many statutory auditors are certified public accountants. The requirements for a statutory auditor differ by jurisdiction. Some jurisdictions require that the auditor be licensed in his or her jurisdiction in order to practice corporate audits.

Once an audit firm begins work with a given company on any external audit work, the firm generally does not receive any additional work from the same company. Each company has internal regulations within the company or its board of directors to determine what additional work, if any, a firm may contract with the company to perform. Most statutory auditors have extensive experience in external corporate audits in order to specialize in this type of work.

Some corporations hire an auditing firm to certify their financial reports. Generally, statutory auditors perform this certification. The external auditor completes a review of the company’s financial situation and its annual financial statements. The auditor then signs off on the company’s annual statements with the report findings. This external report is usually included within the company’s annual report to its shareholders.

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