Statutory Audit vs Internal Audit | Which is the best ?? || Combrella - YouTube

Statutory audit or internal audit which is the best among the two.Iam sure a lot of CA

students who are doing their articleship will have this question in their mind.So in this

video Iam going to decode and discuss the various aspects of both statutory audit and

internal audit and what are the types of learnings and knowledge you can get by doing these two

audits.And also in the end I will tell which is the one which I like the most personally,okay.So

lets jump into this video.Hello friends,my name is CS Karthik and my mission is to spread

knowledge about the world of commerce under one umbrella which is combrella.So Iam going

to give this video very much simple and relatable to all of you and not discuss any theoretical

and technical aspects of stat or internal audit and currently Iam doing both stat and

int audit.And iam sharing all these things from my own personal experience.SO the 1st

point,int audit,if u see is done by both chartered accounts as well as non CAs.For examples,other

professionals such as cost accountants,MBA finance and account people or CIA(certified

internal auditor)which is a foreign post and other professionals,they also do int audit.And

practically also if u see, if u go and see the u know int ausit team of big 4s,there

u will find that apart from CAs,there are various other non CAs also who are doing the

int audit.But if u take stat audit,it is done only and only by CAs So this is the core field

of CAs,right and u can stat audit is the pride and u know the fortress of CAs.Nobody can

even touch us in this particular field of stat audit because it is very much technical

in nature.So because of this particular point, I feel stat audit,u know its kind of,u know

get one rank above int audit because of this very reason.So the 2nd point is in stat audit

we bill be apllying accounting stds,companies act,income tax act,GST ,stds on auditing,FEMA

and so many other things.SO if u see,when u do a stat audit of one particular company,u

will need to know all these things,u will get knowledge and exposure in all these areas.Right

and this will help u to have learnings and experience in so many fields and if u see,all

these which I said now are all there in CA final syllabus also.SO doing stat audit of

one company actually helps u to study for ur CA final exams.It helps for ur CA final

preparations and also revises u for the CA final exams.So thats y I would say u know

stat has kind of an extra edge because of doing all these things.And also if u see,the

real fun in stat audit comes when u know u r discussing with ur teams ,and u know, ur

co-article,managers and partners and there are lot of discussions and debates about what

will be the accounting treatment for this particular transaction ,what is the accounting

stds say,which paragraph of the accounting stds u will have to refer, so,nedd to read

the accounting stds,discuss,what will be the valuation of this particular transaction based

on the accounting stds,what will be the presentation and disclosure aspects u need to keep in mind,right

and then u will have to see whether the company can borrow as per the companies act or not.So

like this, so many things u will be discussing in case of stat audit and there will be lot

of debates,arguments,fights all in a healthy reason, for healthy cause,ok.So all these

debates,arguments,and all this ,so u will have lot of confusion ,further u will get

clarity also, as u keep discussing or or keep reading these things more .So from confusion

to clarity is what u will get when u do these ,u know, discuss about all these things,during

the case of a stat audit and this is what I feel is the charm of stat audit.Because

u will be discussing all the things which r purely technical in nature ,purely related

to the core of CA course.Right,so that is the most important thing in case of stat audit.Then

as u start doing the provision for tax computation,defer tax computation,then u will have to see what

are the timimg differences ,permanent differences,income tax computtaion u will need to know what will

be the dis allowances, what are the allowances .So u will have to discuss that also among

ur teams ,arrive at a final solution for that u will also have to read section for income

tax act like 48B, 43B,36-1,4,.So all these things,because,u r daily reading about all

these things in a very much technical and very much core to the CA field, so all these

things if u see,gives a charm to the stat audit and really makes stat audit very special

and wonderful experience to do.Whereas in int audit,u will not be going so much in depth

like what u do in case of stat audit in these particular areas,right. U will still have

to know what are the various accounting stds,income tax act,complainces but still u dont have

to deep dive in int audits for the things which u do in case of stat audit.But in int

audit,u will get lot of in depth knowledge about the business process of the company.That

is, how the business,how the company does a particular process.So u will have to go

in depth and deep dive into eacha nd every business proces of the co mpany.Like purchase,sales,FA,inventory,treasury,and

so many other things,right.SO when u do int audit, u will lot of understanding about the

processes,controls, how the comapny processes this particular transaction,particular component,and

what are the various controls and checks which are happening in the company.So int audit

gives u lot of in depth knowledge and experiences about the business processes which r happening

in the company.Say for eg,let us take the component of P to P,purchases ,right procurement

to pay.in purchase su will ahve to see all the processes,right from PR(purchase requisition)

to PO,then GRN,invoive booking,Ap, booking and then payment.Right and each and every

process u will need to see and understand what is happening at each and every process

,right,what are the controls in place at each and every process,who is performing those

activities,whether there r proper checks and balances,maker and checker concept is working

or not ,what are the various softwares which people are using in that particular component

level,and whether they r performing their activities correctly or not ,within time or

not ,and what are the risk and control lapses,what are the observations which u can give or recommendations

for improvement of those particular operation in that particular area,say purchase or GRN,u

need to understand all these things in depth ,So in depth process understanding and then

u need to give ur observations and recommendations for improvement of those processes,right.But

same thing u take in case of stat audit ,u will be saying if u seeing purchases,then

u will see whether the PO is there or not,right.if PO is there and nos r matching then u will

move on and keep moving to next components.But,in internal audit,u will not just see PO, u will

see how it is made,who is making the PO,whether the PO was made on time or not and whether

it is properly made .SO like this int audit is like,I would say vertical travel,u have

to go deep down in each and every process,find out operational inefficiencies ,and then give

management recommendations and observations based on which they need to improve.So a person

doing int audit in my experience, I have seen that int auditors of the company actually

know much more about the processes and functions of the company than stat auditors.stat auditors

r more concerned about the nos ,they also have to see controls but if the nos r fine

and making sense, they move on and keep going to next next components.But int auditors will

know more in depth and in detail about the processes and functions which r happening

within the company.So the next point is and Iam sure lot of u will relate to me ,which

is that stat auditors are given more respect by the client ,ok, n thry r also taken more

seriously and u get preferential treatment for stat thN int auditors ,right and the most

,very critical part of the audit is that u get data on time from the client in a stat

audit atleast as far as compared to int audit.,right,u will not get everything on time but atleast

compared to int audit ,u get data on time for a stat audit.SO I think these things give

stat audit a little bit higher ranking,I would say as compared to int audit and then the

next aspect,next point would be stat audit is like a high pressure audit,right its like

a high intensity game ,Ind -pak match .Stat audit,whether u do for a month or whether

its a big audit ,if it takes 3 months,still,everyday its like a high intensity pressure game,u

have to be on ur toes,u will have to work late nights,make sure timelines r met,deadlines

r properly met,so its like a high intensity high pressure game,ie,stat audit whereas int

audit u can do it in a leisurly manner,9:30 to 5:30 or 6:00,u can finish and u can do

a little bit calmly and u can have some breathing space but stat audit is like a ,say,an exam,right

in exams, no matter how much we prepare,one day before the exam will always fele that

if I have 1 more week,it will be always be better.Similarly,is the case with stat audit,u

know, u will always feel what if we could have had some extra time for doing the audit

even more better.SO that is 1 particular thing in case of a stat audit.So the 6th point is

u cant afford to make mistakes in stat audit ,ok,so stat audit if make mistakes,it will

be costly because annual reports,financial statement,auditors report are u know circulated

ot lot of stakeholders,external agencies,govt regulators,,banks and so many other stakeholders

right,so mistakes in stat audit,it will be very costly.U cant afford to make mistakes

even by mistake but whereas in int audits, u can afford to make mistakes .In the sense,u

should not ideally but even if by mistake u made a mistake ,u can still manage those

mistakes in case of an int audit.Because its an internal document which does not go outside

agencies n regulators like in the case of a stat audit.Right,then the 7th point which

I want to tell is if u have done a stat audit ,right and after that if u come to int audit,while

doing articles then while doing stat audit ,u would have got a lot of experience,knowledge

and good control and grip over accounting stds and income tax act,companies act.And

after thst if u come and apply those knowledge in int audit,u will able to find out a lot

of observations in the books of the client ,right .SO doing stat audit and then coming

to int audit will help u to do int audit by getting more good quality observations in

the int audit. whereas on thr other side, if u have done an int audit in articles and

then u r doing some stat audit in ur articleship itself,then in int audit u would have seen

a lot of business processes and internal controls and process complainces .SO by doing stat

audit u will be able to identify what r the control weaknesses ,process gaps,or risk elements

in those particular areas and then u can discuss those with the management before the closure

of the audit so that those points can be improved in the next year .Right,so that id one particular

thing.SO finally,the 8th point which I would like to say is that in your articleship,do

both of stat as well as int audit especially from the period april to sept 6 month,do as

many audits as possible and get most of the experience of the stat audit and the remaining

6 months u can do int audit.ok,So that would be the ideal situation so that after articles

after completion of articles ,post qualification,at that time u will have experience of both and

then u can decide which is the one u want to do after ur qualification of CA.Right,so

that would be the ideal situation and then finally coming to my own choice of liking

.I have done both stat and int audit but I have done int audits more than stat audits.But

I personally like doing stat audits more bcs of all the reasons which I have told u now

So that is why I would keep stat audit a little bit more higher in terms of my personal choice

and int audit if u see is kind of an subset of stat audit .That is if in ur articles,if

u have done only and only stat audit ,still after qualification u can do int audit.But

the other is kind of very difficult,ie,if in ur articleship if u have done only and

only int audits,then post qualification,it will be very difficult to do stat audits.Iam

not saying it will be impossible but it will be difficult bcs of the nature and mindset

of the psyche which u need to have for a stat audit.Hence do both in ur articleship,get

experience of both and then u can decide which do u want to do in the future.And personally

I would like to do 75% of stat audits and 25% ratio of int audit bcs I dont want to

completely eliminate int audits bcs int audit gives u breathing space unlike stat audit

which is full of pressure and also in int audits u will learn business processes which

help u do the stat audit.SO friends, with that we have come to the end of this video

.I hope u all like the various experiences and the points which I have thrown upon both

stat and int audit .Do let me know in the comment section also about ur own experiences

of doing stat and int audit and which is the one which u like the most and I will be very

much excited to read all those points .See u all in the next video .Until then this is

CS Karthik signing off .Thank you and namaste.