Difference between Tax Audit and Statutory Audit

Key Difference: A tax audit is conducted to ensure that the financial statements of a person or an organization are in order. This may be done on the behalf of the person or company, or it may be a requirement. A statutory audit is a legally required audit of company's or government's financial records.

The fear of any taxpayer is an audit. An audit is basically an examination to check and evaluate the financial statements of a person or an organization. The connotation of an audit is usually negative. Whenever someone hears the word audit, the implication is that the person is being investigated for some sort of impropriety, and that there is a chance for penalties in case the person is caught. However, that is not always the case. There are many different types of audits, some of which are conducted by the person or company itself.

Tax Audit and Statutory Audit are two different types of audits. The main different between the two is that a tax audit may or may not be required, whereas a statutory audit is required by law. Usually, the law dictates that a company or organization of a certain size must undergo an audit once a year, or once every two years etc.

A tax audit, on the other hand, can be required or not. A tax audit can be conducted on behalf of the person and company to ensure that they are on track with their taxes. However, it can also be required by the government’s tax agency to ensure that the financial statements are accurate and that all the appropriate taxes are paid.

The main purpose that a tax audit is conducted is to avoid tax fraud or tax evasion. However, a statuary audit can be conducted for a variety of reasons, such as for accountability to shareholders. This ensures that the shareholders know that the company is financially on the right track. It can also be conducted to avoid fraud, embezzlement, as well as to check the financial standing of a company during Mergers and Acquisitions.

Moreover, a tax audit can be conducted internally by the company via its own trusted accountants and auditors, or externally, by hiring a reputed firm to avoid biasness. It can also be conducted by a government appointed auditor as and when required. A statutory audit is generally conducted either externally or by a government appointed auditor, but never internally.

Another simple way to distinguish between the two is to note that any audit conducted under a statute law is a statutory audit, and any audit conducted under a tax law is a tax audit.

Comparison between Tax Audit and Statutory Audit:

 

Tax Audit

Statutory Audit

Definition (Investopedia)

An unbiased examination and evaluation of the financial statements of an organization.

A legally required review of the accuracy of a company's or government's financial records.

Conducted by

Can be conducted internally by the organization or externally by a hired organization. Or it can be conducted by the government’s tax authority.

Usually conducted externally or by the government or government approved organizations

Purpose

The purpose of a tax audit is to make sure the records are a fair and accurate representation of the transactions they claim to represent and pay taxes on.

The purpose of a statutory audit is the same as the purpose of any other audit - to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions.

Requirement

Can be conducted as and when required or wanted by the company. Or when required by the government’s

Is conducted under requirement of law

Relevance

Tax Evasion

Various: Tax Evasion, Mergers and Acquisitions, Fraud, Embezzlement, etc.

 

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