Statutory auditor is a title used in various countries to refer to a person or entity with an

audit An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.” Auditing ...

ing role, whose appointment is mandated by the terms of a

statute A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by le ...

World usage

A "statutory audit" is a legally required review of the accuracy of a company's or government's financial records. The purpose of a statutory audit is the same as the purpose of any other auditto determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions. The

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...

has also made efforts to mandate statutory audits and statutory auditors on an EU-wide level.

By country

India

India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...

, the term "statutory auditor" refers to an

external auditor An external auditor performs an audit, in accordance with specific laws or rules, of the financial statements of a company, government entity, other legal entity, or organization, and is independent of the entity being audited. Users of these enti ...

whose appointment is mandated by law.

Japan

A is an official found in

Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the north ...

ese ''

kabushiki gaisha A or ''kabushiki kaisha'', commonly abbreviated K.K. or KK, is a type of defined under the Companies Act of Japan. The term is often translated as "stock company", " joint-stock company" or "stock corporation". The term ''kabushiki gaisha'' i ...

'' (business corporations). Similar roles are also found in

Taiwan Taiwan, officially the Republic of China (ROC), is a country in East Asia, at the junction of the East and South China Seas in the northwestern Pacific Ocean, with the People's Republic of China (PRC) to the northwest, Japan to the nort ...

and

South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...

, which use modified forms of Japanese corporate law, although the English translation most commonly employed for the role in these countries is ''

supervisor A supervisor, or lead, (also known as foreman, boss, overseer, facilitator, monitor, area coordinator, line-manager or sometimes gaffer) is the job title of a lower-level management position that is primarily based on authority over workers or ...

'' or ''

supervisory board In corporate governance, a governance board also known as council of delegates are chosen by the stockholders of a company to promote their interests through the governance of the company and to hire and fire the board of directors. In civil s ...

''. Statutory

auditor An auditor is a person or a firm appointed by a company to execute an audit.Practical Auditing, Kul Narsingh Shrestha, 2012, Nabin Prakashan, Nepal To act as an auditor, a person should be certified by the regulatory authority of accounting and au ...

s are elected by shareholders and hold a position in the hierarchy alongside the

board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...

. A kabushiki kaisha must have at least one statutory auditor, unless the transfer of shares is restricted in the

articles of incorporation Article often refers to: * Article (grammar), a grammatical element used to indicate definiteness or indefiniteness * Article (publishing), a piece of nonfictional prose that is an independent part of a publication Article may also refer to: G ...

. If the company is classified as a "large" company (i.e. with more than ¥500 million in

paid-in capital Paid-in capital (also paid-up capital and contributed capital) is capital that is contributed to a corporation by investors by purchase of stock from the corporation, the primary market, not by purchase of stock in the open market from other sto ...

or ¥20 billion in liabilities), it must have three statutory auditors, or an audit, compensation and

nominating committee A committee or commission is a body of one or more persons subordinate to a deliberative assembly. A committee is not itself considered to be a form of assembly. Usually, the assembly sends matters into a committee as a way to explore them more ...

system similar to that used by

public companies A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange (list ...

in the US. Statutory auditors have several functions: # They initiate

derivative suit A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are ...

s against the

on behalf of the

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...

s, and represent the company in those suits. This right was once reserved for the auditor; however, following precedent from a recent lawsuit against

Daiwa Bank () is the holding company of , the fifth-largest banking group in Japan as of 2012. It is headquartered in the Kiba area of Koto, Tokyo. The main operating entities of the group are Resona Bank, a nationwide corporate and retail bank headqu ...

, groups of shareholders can now file suits themselves without going through the auditor. # In "mid-size" and "large" companies (i.e. with more than ¥100 million of paid-in capital), they have the right to attend board meetings to monitor the directors' actions. # In "mid-size" companies, they audit the financial reports submitted by the company. # In "large" companies, they oversee auditing performed by external

certified public accountant Certified Public Accountant (CPA) is the title of qualified accountants in numerous countries in the English-speaking world. It is generally equivalent to the title of chartered accountant in other English-speaking countries. In the United Sta ...

s, i.e.

external auditors An external auditor performs an audit, in accordance with specific laws or rules, of the financial statements of a company, government entity, other legal entity, or organization, and is independent of the entity being audited. Users of these enti ...

. Statutory auditors are often selected from among the senior management of the company, or are former directors of related companies (such as suppliers or ''

keiretsu A is a set of companies with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal business group that are loosely organized alliances within the social world of Japan's business community. The ''ke ...

'' partners). The role of the statutory auditor in Japan is distinct from the role of an

internal auditor An internal auditor is an auditor who is appointed by the Board of directors of the company in order to carry out the internal audit function. Generally an employee of the company acts as an internal auditor, whereas some companies appoint an exter ...

as understood in English-speaking countries, which has led to some confusion when discussing their role in internationally prominent cases such as the

Olympus scandal The Olympus scandal was a case of accounting fraud exposed in Japan in 2011 at optical equipment manufacturer Olympus. On 14 October, British-born Michael Woodford was suddenly ousted as chief executive. He had been company president for si ...

. The Japanese association of statutory auditors has recommended adopting the English title "audit & supervisory board member" to avoid such confusion.

References

{{DEFAULTSORT:Statutory Auditor Japanese business terms Japanese business law Auditing