Reviewing and scrutinizing the financial statements and reports of any business is called auditing. Reports and statements can be of any nature like revenue report, expense report, management account record, etc. The audit results are shared only with external and internal stakeholders. These can be shared by the government and banks or publicly when needed. The classification of auditing depends on different types and levels of assurance of audit. As a small business owner, you need to conduct regular audits to ascertain whether your records are accurate or not. Audits can be very beneficial for your company. Learn more about the audit by reading the different types below.
A financial audit is an audit process that is often conducted by external parties. It is one of the important types of audits. It is operated by a designated CPA(Certified Public Accountant) firm, which is more frequent than the outside firm. Which has no connection with the organization, which is to be reviewed. This involves deeply examining the organization’s financial statements and records to assess whether they are correct and complete. Financial audit procedures are aimed at examining transactions and balance sheets. During the financial audit, the auditor may carry out further tests or audit procedures.
Operational audits are similar to internal audits. It analyzes your company’s goals, planning processes, and operating results. It examines an operational process to determine if resources are being used most efficiently and effectively to accomplish the unit’s mission and objectives. Also, this internal control review is a major part of an operational audit. Activities such as cash handling, purchasing, inventory, and human resource services are generally subject to this type of audit. The main goal of an operational audit is to thoroughly evaluate your business’s functions and determine ways to improve them.
Internal audit in any organization is typically conducted by an in-house audit team and focuses on control evaluation, process evaluation, legal compliance, and asset protection. In this, the team’s report is sent to the management and audit committee of the organization, and the recommended changes can be implemented as a result.
External audits are focused on determining the accuracy and completeness of an organization’s financial records, as well as issuing an opinion for it. An “unqualified opinion” indicates whether an external audit has found the company’s financial statements to be accurate and properly presented, as well as complying with GAAP (Generally Accepted Accounting Principles). As the name suggests, external audits are conducted by outsiders. The purpose of an external audit is to allow for objectivity. Internal audits are different from external audits, internal audits are directed by company leaders or by set standards, and external audits are those that follow the standards and procedures audited by the company. The standards for each type of audit indicate different objectives. The purpose of an external audit is to provide information about accuracy to entities outside the organization, such as lenders and investors.
The auditing required by law by the local authority regarding particular financial statements for a particular type of institution is called a statutory audit. Some common examples of statutory auditing as per the financial statements of all banks require auditing of appropriate audit firms, which are approved by the central bank. Statutory audits are conducted after approval by higher authorities and for submission to official authorities.
It is one of the types of compliance audits that are carried out to examine the functioning of the organization’s internal policies and procedures and compliance with prescribed laws and regulations is called a compliance audit. The primary purpose of conducting an audit is to examine the correctness of internal policies against the government’s standards or governing bodies in a particular organization. If your business complies with IRS (Indian Revenue Service) regulations, compliance audits can help you determine whether your business is compliant with workers’ compensation or shareholder distribution.
Forensic audits are usually conducted by a forensic accountant who has skills in both accounting and investigation. Forensic accounting is a type of engagement that performs a financial investigation in response to a particular subject matter, where the findings of the investigation are commonly used as evidence in court or conflict resolution between shareholders. A forensic audit may be required in the following examples; Fraud investigations include misappropriation of money, money laundering, tax evasion, and insider trading, Amount of loss in case of insurance claims, Determination of profit share of trading partners in the event of a dispute, Determination of professional negligence claims related to the accountancy profession.
The tax audit is done by the government’s tax department or designated tax authority. The tax audit can be done as a result of a complaint made by the government or any other whistleblower. The organization is not required to have any interaction with the tax authority as the tax audit is carried out on its own and reports and conclusions are presented directly to the government. No recommendations or participation of the organization are allowed in this audit.
Information System Audit
Information systems affect most software companies and IT companies. The owners of that business use information systems audit to detect software development, data processing, and all related problems from computer systems. These audits ensure that the system provides accurate information to users and that unauthorized parties do not have access to private data. Also, IT and non-software businesses should regularly conduct mini cybersecurity audits to ensure that their systems are protected from fraud and hackers.
Sales auditing is very important for any organization to determine whether the sales practice currently being practiced is working and how it can be improved. The sales audit helps to remove bottlenecks in the sales process and improve the profitability of the organization and hence it is usually done by an external auditor rather than an internal auditor.
It is an audit that results from reports of unusual or suspicious activity on behalf of an individual or department. It usually focuses on specific aspects of a department or individual’s work. An investigative audit is similar to a forensic audit. When fraud or theft is exposed, the investigative auditor compiles evidence and is often asked to testify whether the person responsible for the theft has been prosecuted.
We hope this information will help you to understand the different types of Auditing. You would also like to Read- What is Auditing? Difference Between Auditing and Accounting
Stay updated about the Latest News on Vyaparapp
Download the BEST GST Compliant Mobile Billing App