Audits are of two types namely optional or private audits and statutory or compulsory audits. Basis for this classification is legal requirements with regard to conduction of audit.
Examples for private audits are audit of sole trading concerns, audit of partnership firm, etc., company audit can be taken as example for compulsory audits.
Differences between Private and Statutory Audit
Legal Requirements: Legal requirement is seen in case of statutory audits but not in case of optional audits.
Qualification: In case of statutory, auditor should have the qualification specified by the act concerned. For example: Company auditor`s qualification is specified by companies act Section 226 of Companies Act, 1956. But in case of optional audits the question of qualification does not arise because the act with regard to optional audit is silent.
Rights, Duties, etc., of Auditor: In case of optional audit rights, duties, liabilities, etc., of auditor will be of Contractual nature. The contract which gets formed between auditor and client refers to all those things. There is no involvement of act. In case of statutory audits all such things will be of statutory nature concerned act determines all these things.
Conduction of Audit work: In case of optional audits, audit work takes place as per the agreement but in case of statutory audits, audit work will be conducted as per provisions of act concerned.
Alteration in Rights and Duties: In case of optional audits rights, duties etc of auditor can be altered by mutual understanding between auditor and client.
Report: In case of Optional audit report can be given at the choice of auditor. But in case of statutory audit report must be given as per requirements of concerned act.