What Is a Non-Statutory Audit?

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Businesses and nonprofit organizations often conduct audits of their performance to provide information to regulators, investors or donors about their activities. Different types of audits involve different types of functions according to an organization's needs and the requirements it faces. Understanding the difference between statutory and non-statutory audits is important for the managers and owners of a business or a nonprofit organization.

Basics

A non-statutory audit is a review and verification of a company or organization's business that is not required by either the law or a regulatory agency. In some cases, a company may still be required to perform an audit for reasons other than the law. Organizations may have latitude to set some of the terms of a non-statutory audit, though many will choose to follow generally accepted accounting principles to ensure that their audit provides them with valuable and consistent information.

Advantages

Non-statutory audits have several advantages over statutory audits and, in many cases, over not performing audits at all. A non-statutory audit can be tailored to the specific needs of the organization and avoid work that may not be necessary or useful to an organization in a non-regulatory context. As a result, some non-statutory audits may be less extensive and cheaper than those required by regulation. Like statutory audits, non-statutory audits also provide an unbiased assessment of the organization's activities and can help identify potential weaknesses.

Drawbacks

While non-statutory audits offer key advantages for some organizations, they may have drawbacks for others. For companies and nonprofits already required to perform a statutory audit, further auditing activities might come at a considerable expense. In these cases, it is important to weigh the value of the information and security an audit might provide with its cost. For those without a statutory requirement, a non-statutory audit may not be as extensive or as useful as those required by law. Finally, because the content of non-statutory audits and reviews may vary considerably from firm to firm, they may not be as useful for comparison purposes as those that are performed according to uniform regulations.

Requirements for a Non-Statutory Audit

There are some cases when organizations are required to perform a non-statutory audit. Often, charities are required to engage in non-statutory audits to satisfy the needs of donors or grants and verify the effectiveness of their management practices. In other cases, creditors and investors might request an audit of companies they do business with. Non-statutory audits required in these circumstances are conducted according to the standards of donors, grants, investors or creditors.

References

About the Author

Matt Petryni has been writing since 2007. He was the environmental issues columnist at the "Oregon Daily Emerald" and has experience in environmental and land-use planning. Petryni holds a Bachelor of Science of planning, public policy and management from the University of Oregon.

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