---
slug: what-a-statutory-audit-actually-checks
title: "What a statutory audit actually checks — and what it does not"
h1: "What an audit actually does"
meta_description: "Most business owners think an audit checks every transaction, catches fraud, and approves their tax position. It does none of those things. Here is what an audit really is."
focus_keyword: "statutory audit Nepal"
secondary_keywords: "audit vs tax audit, what auditors check, materiality, audit opinion meaning"
category: audit
status: draft
schema_type: Article
review_due_on: "annually"
---

"You audited it, so it must be fine" is one of the most expensive misunderstandings in business. It leads people to assume that a clean audit report is a guarantee — of accuracy, of tax compliance, of the absence of fraud. It is none of those things, and the gap between what people think an audit is and what it actually is causes real damage when something goes wrong.

So here is the honest version.

## An audit gives an opinion, not a certificate

An auditor expresses an opinion on whether the financial statements, **taken as a whole**, are free from material misstatement and present fairly in accordance with the applicable framework.

Three words in that sentence do the heavy lifting.

**Opinion.** It is a professional judgment based on evidence gathered, not a guarantee of correctness. It is signed by someone who has looked hard and formed a view, not by someone who has verified everything.

**As a whole.** The opinion is on the statements collectively, not on any individual balance, transaction or invoice.

**Material.** Auditors work to a materiality threshold, set by reference to the size of the business. Errors below it are not chased, because chasing them adds cost without changing any decision a reader would make. An audit is not a hunt for every mistake.

## Sampling is not a shortcut, it is the method

Auditors do not examine every transaction. On a business with fifty thousand entries, nobody does, and the fee that would allow it does not exist.

Instead the auditor identifies where things are most likely to go wrong — the areas involving judgment, estimates, unusual transactions, weak controls, or management incentive — and tests those hardest. Routine, low-risk, well-controlled areas get lighter treatment.

This is deliberate and it is professionally correct. But it means a small misstatement in a low-risk area can pass through an audit performed to a perfectly proper standard. That is a known and accepted feature of the design, not a failure of it.

## Fraud: what auditors do and do not do

An auditor is required to consider fraud risk, to stay professionally sceptical, and to design work that responds to where fraud could plausibly occur.

But an audit is not a fraud investigation. Fraud is concealed on purpose, often with forged documents and sometimes with collusion between people who are supposed to check each other. The techniques that reliably uncover determined, collusive fraud are forensic techniques, and they are a separate engagement with a separate scope and cost.

Preventing fraud is management's job, through controls. Detecting it is a possible outcome of an audit, not its purpose.

## The audit is not a tax opinion

This one costs businesses the most money.

An audit is conducted against the financial reporting framework. Tax is computed under tax law. They are different rule sets with different definitions of income, different treatments of expenditure, and different depreciation entirely.

A clean audit report says nothing about whether your tax position is defensible. Your accounts can be entirely fairly stated and your tax computation can still be wrong, because the two are answering different questions. If you want assurance on tax, that is a tax review — ask for it as such.

## Where audits actually add value

Given all those limits, why bother?

**Credibility with outsiders.** Banks, investors and counterparties need statements that someone independent has tested. That independence is the product.

**Control weaknesses get named.** Auditors see how the money moves, and the management letter often identifies weaknesses that management genuinely did not know were there.

**Judgments get challenged.** Provisions, valuations, revenue recognition timing and related-party treatment are where the real risk sits, and an audit forces those judgments to be defended rather than assumed.

**Discipline.** Knowing the year will be examined changes how it is recorded. The effect on record-keeping is real even before the auditor arrives.

## How to get more out of yours

- Close the books properly before fieldwork starts. Auditing a moving target is slow, expensive and produces a worse result for you.
- Prepare the schedules that get asked for every year. You already know what they are.
- Explain unusual transactions up front. A one-line note written when it happened saves a week of queries later.
- Read the management letter and act on it. It is the most useful document in the whole engagement and the most commonly filed away unread.
- Ask what the auditor is worried about. Any auditor worth engaging will tell you.

## Frequently asked

**Does a clean audit report mean my accounts are 100% correct?** No. It means the statements as a whole are free from *material* misstatement, judged against a threshold set for your business's size.

**Will the audit catch a staff member stealing?** It might, particularly if controls are weak. But that is not what it is designed to do. Reliable detection of concealed theft requires a forensic engagement.

**My accounts were audited. Am I safe from a tax assessment?** No. Audit and tax are separate frameworks. A tax authority can and does take a different view on the tax treatment of transactions in audited statements.

**Why does the auditor ask about things that seem tiny?** Amount is not the only measure of importance. Related-party transactions, unusual timing and anything touching management incentives matter regardless of size.

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*This article describes the general nature of a statutory audit. The specific requirements applying to your entity depend on its size, type and governing law.*
