Classification Of Audit, 28 different types of audit
Auditing has evolved as a rapidly evolving field of study. Depending on the structure of the audit, there are two types: statutory and non-statutory. Legally constituted organizations, such as companies and cooperative societies known as statutory organizations and fall under the law. Non-statutory organizations, such as sole proprietorships and partnerships, are not required to conduct audits, although they may benefit from them. In addition to statutory audits, large companies are implementing cost audits, tax audits, social audits, and environmental audits as required by law or social commitments. Here is the classification of audits,
There are mainly two types of audit :
- External audit or Independent audit (Not by the staff of the organization)
- Internal Audit (By the staff of the organization)
Classification of Audit
Internal Audit
An internal audit is conducted continuously throughout the year by employees within a company or organization exclusively for internal purposes. This report is solely for internal control.
An organization’s internal audit aims to add value and improve its operations by providing independent, objective assurance and consulting. With its systematic, disciplined approach to risk management, control, and governance, helps an organization achieve its objectives.
In order to ensure that internal controls are adequate to mitigate risks, governance processes are effective and efficient, and organizational goals and objectives are met, an internal audit is conducted by professionals with a deep understanding of the business culture, systems, and processes.
Internal audit is an important part while we talking about classification of audit.
External Audit
Performed by an external auditor with no relation to the company. External auditors provide a more independent and neutral opinion.
During an external audit, an independent accountant examines a company’s financial records in depth and verifies the results. For all publicly-held companies, certified statements are required, and investors, lenders, and shareholders may request them if there appears to be a discrepancy.
External audits are usually conducted as a legal requirement. As the name suggests, an internal audit is done by individuals within the organization that are analyzing the financial statements, while an external audit is conducted by independent outside auditors.
Continuous Audit
Continuous auditing is a process whereby an organization monitors its operations on a regular, 1-month or 3-month basis and identifies any changes or irregularities. This process helps to ensure that the organization is operating in a safe and secure manner. A continuous audit is a costly process so it’s mostly used in large organizations. An organization can conduct continuous auditing in a variety of ways. Some examples include computerized monitoring, walkthroughs, and audits.
Periodical Audit, Final Audit or Complete Audit
Periodical, final or completed audit is conducted at the end of a financial period or after closing the books of accounts. This is for the purpose of final or end-term audits. During this type of audit, the auditor visits an organization once a year or after a period of time and performs an audit. These types of audits are cost-effective as they avoid continuous auditing processes. It has lots of additional benefits but more chances of fraud and scams when compared with continuous audits.
Interim Audit
Interim audits assess profitability in between yearly audits, enabling corporations to declare interim dividends. The interim audit consists of a thorough review of all transactions and accounts up to the audit date. An interim audit occurs between two balance sheet audits. In this procedure, the goal is to determine an interim dividend or to determine the share value at a specific time.
Balance Sheet Audit
`A balance sheet audit is an evaluation of the accuracy of information derived from an organization’s balance sheet. This type of audit verifies the entries on the balance sheet, such as capital, liabilities, assets, provisions, reserves, and profit and loss. Auditors only examine the documents that are linked to entries listed on the balance sheet.
Standard Audit
A standard audit refers to an audit based on test checking. During these audits, certain items are thoroughly examined. This involves a wide range of sampling techniques and statistical sampling methods. Auditing standards are followed for the preparation of an unqualified audit report.
Limited Review Audit
In the limited review audit, the auditor needs to submit a short review report in an interim period. This type of report is not a final report and only use for general checking and is not based on standard auditing procedure.
System Audit
A system audit is used to check if different types of accounting mechanisms and controlling standards are properly followed or not in an organization.
EDP Audit
Electronic Data Processing Audit (EDP) is an audit performed in a digital environment using different types of software and computers to collect records, and evidence and assess them as per the accounting standards.
Detailed Audit
In a detailed or complete audit auditor has to check every single transaction in an organization no matter what is the value and type of that transaction. In this type of audit, the auditor has to operate without any limitations. All records, invoices, transactions, and documents are thoroughly checked.
Partial Audit
When an audit is executed on a part of the record or a part of a transaction in a partial period of time in an entire year, it is called a partial audit.
Statutory Audit
When an audit is done as per law or it is compulsory under the conditions of the law, it is called a statutory audit. Example of organisations that carries out the statutory audit.
- Joint stock companies, registered under the Companies Act.
- Public and charitable trusts registered under various religious and Endowment Acts
- Co-operative societies are registered under the Societies Registration Act or State Co-operative Societies Act of the States.
- Banking companies are regulated under the Banking Companies (Regulation) Act of 1949.
- Insurance companies are governed by the Insurance Act, of 1938.
- Public corporations are formed under special acts.
Non-statutory Audit
When auditing is not compulsory or statutory as per the authority but is executed to gain the advantage of the audit, it is called a non-statutory audit. sole proprietorship firm small-scale business and joint ventures are use cases of the non-statutory audit.
Government Audit
Government audits are those that are performed on Government companies, Public Sector Undertakings (PSUs), and all other state and central government organizations. Every country or state has its own audit department. In India, it is controlled by the Comptroller and Auditor General of India (CAG). Government audit is a continuous running process due to the huge amount of transactions and complex structure.
Cost Audit
During a cost audit, the costing system, technique, and accounts are examined in detail to ensure that they are correct. This is to ensure they are aligned with cost accounting standards.
The goal of cost auditing is to ensure that the company’s cost accounting system is accurate. Furthermore, it also serves as a way of checking and ensuring the accuracy, actuality, authenticity, and overall accuracy of its cost accounts. This involves not only the review of cost accounts but also the implementation of the plan developed in this context.
Tax Audit
Under section 44AB of the income tax act, 1961 tax audit is compulsory. A person with a business turnover of more than 1 crore or a profession with gross receipts of over 25 lakh is required to get his account audited.
Management Audit
Management audits are an efficient tool for ensuring that organizations are meeting their goals and objectives. A management audit is a review of an organization’s management systems and practices to assess the effectiveness of those systems and to identify any areas of improvement. A management audit should include a review of the organization’s mission, goals, objectives, Strategy, plans, procedures, financials, and Human Resources. Management Auditor positions are only available to people with extensive knowledge and experience in management techniques.
Social Audit
As part of a social audit, companies evaluate their efforts, procedures, and codes of conduct regarding social responsibility, including their impacts on society. In social audits, the Company assesses whether it is meeting its goals or taking steps to improve social responsibility. Using the report, the company identifies improvement opportunities.
Advantages and Disadvantages of Audit
Environmental Audit
It is a systematic assessment of a company’s environmental responsibility that is known as an environmental audit. By identifying environmental compliance gaps, verifying how well they meet stated objectives, and taking the appropriate corrective actions, it ensures that environmental responsibility is being executed in accordance with environmental laws.
A company’s potential hazards or risks are assessed as part of the audit. Besides examining environmental policies, procedures, energy use practices, recycling, waste, conservation, and pollution, the company may also conduct a risk assessment. Following the results, adjustments can be made to comply with the rules.
An environmental audit was initially used in the USA to determine whether a company was in compliance with local environmental laws. The first environmental audit was conducted by TISCO in 1978.
Human Resource Audit
A Human Resource Audit is an effective tool to help identify areas in which an organization may need improvement in regard to employee management and HR policies and procedures. An HR audit identifies areas where an organization may be neglecting key HR policies and procedures, or where employees may not be treated fairly.
An audit can also help to identify any possible issues with the HR systems and data structure. By understanding the layout and operation of HR systems, An organization can improve the accuracy and efficiency of its human resources processes.
Proprietary Audit
The purpose of a propriety audit is to evaluate the appropriateness of policy and procedure. In addition, it measures the decisions and actions made in the public interest and mitigates standards of conduct. Performing a propriety audit involves checking that transactions have been made in accordance with the principles, rules, regulations, guidelines, and standards which are in the best interest of the public.
Stock Audit
Basically, a stock audit is a process of verifying the physical assets of a company or organization. It is important to recognize that there are different types of stock audits depending on the purpose, and each type requires a different approach. When auditing stocks, the auditor determines the quality, quantity, segmentation, and value of each stock. The stock audit is one of the most important parts of a statutory audit
How to prepare for audit in 5 steps
Public Deposit Audit
A public Deposit Audit is conducted by the Reserve Bank of India (RBI). The main goal of a Public Deposit Audit is to ensure banks follow all regulations and standards as per RBi. It also identifies any weaknesses in the bank’s financial condition and identifies areas where it could improve its operations. Checks if banks pay interest regularly on public deposits. The Public Deposit Audit is an effective tool for the RBI, as it allows the RBI to assess the overall health of the public sector banking
Corporate Governance Audit
A corporate governance audit is an evaluation of a company’s compliance with its governing documents and applicable laws and regulations. The audit may be conducted by the company’s board of directors, a committee of the board, or an independent third party.
The purpose of this is to make sure that all applicable laws are adhered to and that internal control systems, policies, and procedures are effectively implemented to benefit all stakeholders.
Cash Flow Audit
A cash flow audit is a financial review that is performed to identify and assess the cash flow (cash inflow and outflow) activity of a business. A cash flow audit can identify problems and opportunities that may impact future profitability. By understanding a business’s current cash flow situation, investors can better assess the company’s future prospects. Additionally, the cash flow statement must be included in the annual report.
Compliance Audit
A compliance audit is a critical component of ensuring that an organization is complying with all of the applicable standards and regulations. Also, it measures how effective the internal systems are in the organization. A compliance audit can assist your organization in identifying any areas where it may be violating regulations.
Performance Audit
Performance audits are an effective way to ensure the effectiveness of an organization’s systems and processes. They can identify areas in which an organization’s systems and processes can be improved, and can provide guidance for reducing system downtime and improving system performance.
Performance audits help analyse and strengthen organisational performance and improve internal audit and control systems.
Classification of audit another list
Classification of Audit conclusion
There are lots of different types of audits procedure available in the market for different industries and categories. We listed mostly used and widely tested procedures here.
Classification of Audit Pdf
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