What are the Types of Audits?
What are the Types of Audits?
The Company Audit is the evolution activity and determines the financial and operational—strategic goals and exercises in organizations to decide if the organization is following the rules and regulations. One of the essential objects of auditing is to see if an organization is following all the rules and regulations. Every entity registered under the Companies Act as a Private Limited or a Public Limited company must get its books of accounts audited annually. The present article briefs the Different Types of Audits.
Internal Audit
As the name suggests, it is an audit of internal affairs; the Audit is carried out to decide if the internal part of the organization as per the rules and regulations.
- The internal Audit can be done by anyone, even by the organization’s employees.
- In this type of Audit, the auditors check if the organization follows proper norms and rules and whether it complies with all the internal regulatory standards.
External Audit
External Audit can be compulsory for some organizations as per some rules and requirements of shareholders.
- The external audit report shall also be shown to the entire shareholder in annual general and board of directors meetings.
- Some independent professional does external Audit with the qualification mentioned in the rule.
External Audits can be done annually, half-yearly or quarterly. If some organizations feel something needs to be correctly visible to seniors, they can also conduct an external audit. The organization can also appoint a third party to conduct an audit.
Financial Audit
Financial Audit is essential for the organization as the shareholder invests money in the business and needs to know if their money is being properly used. Money is the profit for the company and making a profit is one of the objectives of the business, and it is an income for the organization. Financial Audit is an audit of the books of accounts to know if the organization is expressing the actual books or hiding some facts from their investors.
Information Technology Audit
An information Technology Audit (IT Audit) is carried out to assess the organization’s IT infrastructure and know its system. It is done to inform the stakeholders that the organization’s IT structure is up to date and can meet the goals and objectives.
Statutory Audit
The organization conducts this Statutory Audit to see if the organization is in complying with all Government regulations. It is verified by the external auditor while doing the external Audit and also demonstrates some of the financial reports, which include the following:
- Statements of bank
- Number of clients
- Earning on investment
- The Audit improves the transparency and trust among all the public and stakeholders of the organization.
Performance Audit
Performance audits cover a variety of assessments. A firm may request a performance audit to evaluate any of the following objectives:
- Program effectiveness and results
- Internal controls
- Compliance with certain requirements
- Prospective analysis
- Operational Audits
Operational audits review an organization’s activities with specific aims. An auditor will analyze the process, procedure, and system; and evaluate operational effectiveness, efficiency, and productivity.
Employee Benefit Plan Audits
An employee benefit plan audit analyzes and evaluates an employee benefit plan’s financial statements.
Compliance Audits
A compliance audit is conducted to determine if it complies with a Government’s standards, rules, and requirements. A Government sets the conditions and hires an auditor to evaluate the entity’s compliance.
Payroll Audits
Payroll audits review the payroll processes and reports of a firm. This Audit will identify errors, improve compliance, and protect the company from fraud. An internal auditor or a third-party auditor can perform this Audit.
Forensic Audit
A forensic audit examines a company’s financial records to identify illegal finance activity. The auditor(a forensic accountant) will look for evidence that may be used in court or for conflict resolution among shareholders.
An organization may need a forensic audit if individuals suspect fraud, theft, or inaccuracies (both positive and negative) in account balances.
