What Are Some of the Common Things Corporate Auditors Check During a Statutory Audit?

A statutory audit is a legally required examination of a company’s financial statements to ensure that they present a true and fair view of the organisation’s financial position. In Singapore, statutory audits are conducted in accordance with the Singapore Standards on Auditing (SSA) and relevant financial reporting frameworks such as the Singapore Financial Reporting Standards (SFRS).

For business owners, especially SMEs, understanding what auditors actually look for during a statutory audit can significantly improve audit readiness, reduce stress, and prevent costly issues. While audits may seem complex, they generally revolve around a structured set of checks focused on financial accuracy, compliance, internal controls, and risk management.

This article explores in detail the common areas corporate auditors examine when performing a statutory audit of your company.

1. Accuracy of Financial Statements

The primary objective of any statutory audit is to verify whether the financial statements are accurate and reliable. Auditors will carefully review the following:

a. Balance Sheet

Auditors check whether the company’s assets, liabilities, and equity are properly recorded. This includes verifying:

Cash balances
Trade receivables and payables
Fixed assets
Loans and borrowings

b. Profit and Loss Statement

They examine whether revenue and expenses are properly recognised and recorded in the correct accounting period.

c. Cash Flow Statement

Auditors assess whether cash inflows and outflows are accurately classified into operating, investing, and financing activities.

d. Notes to Financial Statements

Disclosures are equally important. Auditors ensure that the notes provide sufficient detail and comply with accounting standards.

2. Revenue Recognition

Revenue is one of the most sensitive and high-risk areas in an audit. Auditors will focus heavily on whether revenue is recognised correctly.

Key checks include:

Whether revenue is recorded in the correct accounting period
Whether sales are genuine and supported by invoices
Whether revenue complies with applicable accounting standards (e.g., SFRS 15)

Auditors may perform:

Sample testing of sales invoices
Verification against contracts or agreements
Cut-off testing around year-end

Improper revenue recognition can significantly distort financial results, so this area receives close scrutiny.

3. Expenses and Cost Verification

Auditors also examine whether expenses are legitimate, properly recorded, and supported by documentation.

Common checks include:

Supplier invoices and receipts
Expense classification (e.g., capital vs. operating expenses)
Completeness of expenses (ensuring no understatement)

They will also ensure that:

Expenses are recorded in the correct period
There are no fictitious or duplicate expenses

4. Cash and Bank Balances

Cash is highly susceptible to misappropriation, making it a key audit focus.

Auditors will:

Obtain bank confirmations directly from banks
Reconcile bank statements with accounting records
Review bank reconciliation statements

They also check for:

Unusual transactions
Large or unexplained transfers
Timing differences

Petty cash balances may also be physically verified.

5. Trade Receivables (Debtors)

Auditors assess whether the company can realistically collect the money owed by customers.

Key procedures include:

Sending debtor confirmations to customers
Reviewing aging reports
Assessing allowance for doubtful debts

They will question:

Long-outstanding receivables
Unusual credit terms
Large balances with a single customer

6. Trade Payables (Creditors)

Auditors check whether all liabilities are properly recorded and complete.

This includes:

Supplier statement reconciliations
Reviewing unpaid invoices
Checking for unrecorded liabilities

They may also perform:

Cut-off testing to ensure expenses are recorded in the correct period

7. Inventory Verification

For companies dealing with physical goods, inventory is a major audit area.

Auditors will:

Attend stock counts
Observe inventory procedures
Perform sample counts

They also check:

Inventory valuation methods (e.g., FIFO, weighted average)
Obsolete or slow-moving inventory
Accuracy of stock records

8. Fixed Assets

Auditors verify the existence, ownership, and valuation of fixed assets such as machinery, equipment, and vehicles.

Key checks include:

Reviewing asset registers
Verifying purchase invoices
Checking depreciation calculations

They may also:

Physically inspect major assets
Assess whether assets are impaired

9. Payroll and Employee Costs

Payroll is another significant area due to its recurring nature and potential for fraud.

Auditors will review:

Employment contracts
Payroll records
CPF contributions (in Singapore)

They check for:

Ghost employees
Incorrect salary payments
Proper approval processes

10. Compliance with Laws and Regulations

Auditors assess whether the company complies with relevant laws and regulations.

This includes:

Companies Act requirements
Tax regulations
GST compliance (if applicable)

They may review:

Tax filings
Board resolutions
Statutory registers

Non-compliance can lead to penalties, so this is a critical area.

11. Internal Controls

Internal controls are systems and processes designed to prevent errors and fraud.

Auditors evaluate:

Segregation of duties
Approval processes
Access controls

For example:

Is the same person handling payments and recording transactions?
Are there proper approvals for expenses?

Weak internal controls increase audit risk and may lead to additional audit procedures.

12. Fraud Risk Assessment

Auditors are required to assess the risk of fraud.

They look for:

Unusual transactions
Management override of controls
Related party transactions

Auditors may also:

Conduct interviews with management
Analyse trends and anomalies

While auditors are not primarily responsible for detecting fraud, they must remain alert to potential red flags.

13. Related Party Transactions

Transactions with related parties (e.g., directors, shareholders, or affiliated companies) are closely examined.

Auditors check:

Whether such transactions are properly disclosed
Whether they are conducted at arm’s length
Whether they are approved by the board

Failure to properly disclose related party transactions can lead to serious compliance issues.

14. Going Concern Assessment

Auditors evaluate whether the company can continue operating for the foreseeable future (usually at least 12 months).

They consider:

Cash flow position
Debt obligations
Business performance

Warning signs include:

Continuous losses
Negative cash flow
High levels of debt

If there are significant uncertainties, auditors may include a “going concern” emphasis in their report.

15. Accounting Policies and Estimates

Auditors assess whether the company’s accounting policies are appropriate and consistently applied.

They also review estimates such as:

Provision for doubtful debts
Inventory obsolescence
Depreciation rates

Since estimates involve judgment, auditors evaluate whether they are reasonable and supported by evidence.

16. Cut-Off Testing

Cut-off testing ensures that transactions are recorded in the correct accounting period.

Auditors will:

Examine transactions near year-end
Check whether revenue and expenses are recorded correctly

For example:

Sales recorded before delivery may be flagged
Expenses incurred but not recorded may need adjustment

17. Documentation and Audit Trail

Auditors require proper documentation to support all transactions.

They will review:

Invoices
Contracts
Payment records
Supporting schedules

A lack of documentation can lead to:

Audit adjustments
Qualified audit opinions

18. Analytical Procedures

Auditors perform analytical reviews to identify unusual trends.

This includes:

Comparing current year figures with prior years
Analysing ratios (e.g., gross profit margin)
Identifying fluctuations

For example:

A sudden increase in revenue without explanation may trigger further investigation

19. Management Representations

At the end of the audit, auditors obtain a management representation letter.

This document confirms that:

Management has provided all relevant information
Financial statements are complete and accurate

It serves as an additional layer of accountability.

20. Final Audit Opinion

After completing all procedures, auditors issue an audit opinion.

Common types include:

Unqualified (clean) opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion

A clean audit opinion indicates that the financial statements are reliable and comply with applicable standards.

Conclusion

A statutory audit is much more than a routine compliance exercise. It is a comprehensive review of your company’s financial health, internal controls, and regulatory compliance.

Corporate auditors focus on key areas such as:

Financial statement accuracy
Revenue and expense verification
Cash and asset validation
Internal controls and fraud risks
Compliance with laws and accounting standards

For business owners, understanding these audit areas can make a significant difference. Proper preparation—such as maintaining accurate records, strengthening internal controls, and ensuring compliance—can lead to a smoother audit process and a stronger financial foundation for your company.

Ultimately, a well-conducted audit not only satisfies regulatory requirements but also enhances credibility, improves financial discipline, and builds trust with stakeholders such as investors, banks, and regulators.