Statutory auditor

What it means

A statutory auditor is a licensed individual or audit firm entitled to carry out an audit of financial statements and issue an audit opinion. Obtaining the licence requires relevant education, experience and passed exams, followed by continuing professional development.

Auditors are listed in the register kept by the Auditing Oversight Authority. The Authority reviews the quality of their work, can impose sanctions and may withdraw the licence for serious failures. The register is public, so a company can easily verify an auditor's authorisation.

Independence is the key requirement. The auditor must have no financial interest in the company, no personal ties to it and must not provide services that would threaten objectivity, such as keeping the books the auditor would later have to audit.

How it works in practice

A joint-stock company always needs an audit, and other reporting entities do once they exceed the statutory size criteria, for example for assets, turnover and headcount. An audit is also required for consolidated financial statements and for some grants or loans.

The auditor is usually appointed by the general meeting or another body named in the articles, well before the end of the financial year so the auditor can plan the work and attend, for example, the stock count. The engagement letter sets the scope, deadlines, fee and the cooperation the company must provide.

An audit of the financial statements runs more smoothly when the company keeps its accounts reconciled throughout the year, documents estimates and provisions and has inventory lists ready. Good bookkeeping reduces the auditor's questions and therefore the time and cost of the audit.

What to watch out for

If a company required to have an audit does not have its statements audited, it breaches the Accounting Act and faces a fine. Moreover, without the audit opinion it cannot properly file the statements in the register, which can complicate relations with banks and business partners.

Stricter rules apply to large accounting entities and public interest entities, such as mandatory auditor rotation after a set period and limits on non-audit services. Before giving the auditor other work, the company should check that it can be provided without compromising independence.