CA Professional Advanced Auditing & Professional Ethics Types of Audits

CA Professional Advanced Auditing & Professional Ethics

Types of Audits

The audit is an art of systematic and autonomous analysis and inspection of financial information, management accounts, management reports, accounting records, functional reports, income, revenue and expenditure reports, etc. Shareholders and other important inner stakeholders of the organization will be reported on the outcome of the review and inquiry.

Sometimes, audit reports are submitted to other stakeholders such as govt, banks, creditors or the public. The audit is categorized into many distinct kinds and level of certainty according to goals, scopes, purposes and auditing processes.

The execution of an audit of financial statements usually complies with International Auditing Standards (ISA) and other local auditing norms. There are many audit kinds, including economic audit, operational audit, statutory audit, compliance audit, etc.

Here we have described the 14 types of audits that are carried in the present audit industry or practices.

1. Statutory Audit

Statutory audit refers to an audit of accounts for the particular type of entities needed by law or local authority. For instance, all banking industries needed their financial statements to be audited by the central bank’s authorized skilled audit companies..

The statutory audit could be the distinction from auditing the financial statements as the financial audit refers to auditing the financial statements of all kinds of the entity including both meetings or not meeting the requirement of the government.

However, statutory audit only relates to auditing the financial statements of the entity that local law requires External audit companies usually conduct the statutory audit and the audit report is issued by the auditor and submitted by the organization to the public body. The best instance of the company of statutory auditing is KPMG, PWC, EY, etc

The common criteria laid down by law requiring companies to have their financial statements audited by a skilled audit company are the annual turnover quantity, the value of assets, and the number of employees.

Some nations may require companies to audit the financial statements of that business in particular sectors such as banks, minerals, and others based on their choice.

Companies listed on the stock exchange are usually needed to have their financial statements audited by a skilled audit form.

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2. External Audit

The external audit is a type of audit service that provides Assurance Service, Consultant Service, Tax Service, Legal Service, Financial Advisory and Advisory on Risk Management. The best instance of internal auditing is the services that these four major audit firms provide, including KPMG, PWC, EY and Deloitte.

Normally, external auditors refer to audit staff working in audit companies. These types of companies are sometimes referred to as CPA companies because they are needed by law to hold CPA qualifications to be able to operate an audit company and issue audit reports.

This type of audit needed to keep the professional code of ethics and to strictly adhere to international audit and/or local norms as needed by local law.

Companies work separately from auditing customers they are auditing, and if there has been a conflict of interest, appropriate processes need to be taken to minimize disputes. If the impairment could not minimize to the acceptable level, the form should consider withdrawal from the audit committee.

Note: Some external audit companies also provide internal audit services. The common services that external audit companies provide are an audit of financial statements, tax consultants, and advisory services.

3. Internal Audit

Internal Auditing is a consulting service for independence and objectivity designed to add value to the company and enhance the operation of the entity. It offers a systematic and disciplined approach to risk management, internal control, and corporate governance assessment and assessment.

In general, the scope of the internal audit is determined by the audit committee, the board of directors or managers with an equivalence authorization. And if there is no audit committee and management board, the internal audit will usually report to the company’s proprietor.

Internal audit operations usually include internal auditing, operational auditing, fraud inquiry, compliance auditing and other special tasks allocated by the audit committee or BOD.

4. Financial Audit

Financial audit relates to an independent auditor auditing the financial statements of the entity where an audit opinion on those financial statements will be given.

Normal financial auditing by an external audit company holding CPA. Financial auditing usually takes place at the end of the accounting period and annually. This sort of audit is also referred to as auditing of financial statements.

But sometimes the financial audit also performs on a quarterly as required by management, bank, security exchange, regulation, or otherwise. Most of the organization prepares its IFRS-based financial statements and some organization prepares its financial statements on the basis of local GAAP.

For example, the U.S. entity register, their financial statements are prepared on the basis of U.S. GAAP. If the financial statements are prepared on the basis of IFRS, it is necessary to audit the financial audit against IFRS.

If, however, the financial statements are prepared on the basis of local GAAP, then an audit against that local GAAP must be carried out. The audit standards that the auditor uses to carry out economic audits must follow global norms and local law requirements.

Some nations require an audit company to comply with their audit norms, while others have adopted and transformed the global norms into local.

5. Tax Audit

Tax audit is a sort of audit carried out by the tax department or tax authority of the government. Tax audit could be carried out as a consequence of a government agency or the timetable set by the government tax department being discovered to be incompatible.

An organization does not need to invite or participate in a tax audit with the tax authority. They are going to come on their own. To minimize the penalty resulting from the tax audit, it is suggested that the entity complies with all the requirements laid down by tax law and that the entity should engage with the tax consulting company for advice in those fields that they are not sure of.

6. Information System Audit or Information Technology Audit (IT Audit)

Sometimes an audit of the information system is called an IT audit. This type of audit evaluates and monitors the security system’s reliability, information security structure, and system integrity.

Financial auditing also sometimes involves IT auditing as technology is now improving and most of the client’s financial reports are recorded through complicated accounting software. The audit strategy has also altered as the management strategy has changed in recording and reporting the economic data of their entity.

Usually, before depending on the information scheme (software) used to produce financial statements, the auditor must have IT, audit team, first test and review the information system.

It also provides and requests this type of audit independently from the financial audit. As you may understand, most of the large companies have facilities of this kind. They not only provide IT auditing but also offer information system areas consultants.

7. Compliance Audit

A compliance audit is a form of audit that monitors inner policies and processes as well as legislation and regulation. What we mean by law and regulation is the law of the government where the company operates.

For example, there are many kinds of regulation that bankers need to follow and comply within the banking industry. Most central banks needed commercial banks to establish a complaint review (evaluation) or compliance audit to ensure compliance with the laws and regulations laid down.

The organization may also assign its internal audit function to review the compliance and effectiveness of the inner policies and processes of the organization.

A compliance audit is a component of the scheme used by the management of the entity to implement the efficiency of the law and regulation of the government and the inner policies and processes of the entity.

8. Forensic Audit

The forensic audit is usually conducted by a forensic accountant who has the ability to both account and investigates. Forensic accounting is the sort of commitment that the Financial Investigation undertakes in reaction to a specific topic, where the inquiry results are usually used as proof in court.

The inquiry covers numbers of fields including fraud, crime, claims for insurance, as well as a shareholder dispute. There is also a need for a forensic audit to have a correct plan, procedure, and report like other audit commitments.

The forensic audit must also follow ethical guidelines such as financial statements auditing. This type of commitment is not as common as economic auditing or statutory auditing.

9. Value For Money Audit

Money audit value refers to audit activities that evaluate and evaluate three main factors of difference: economy, efficiency, and effectiveness.

Economy, auditor assess and evaluate whether the resources purchased by the organization are of appropriate quality at a low price where effectiveness audit, the auditor checks whether the funds used by the organization have a better conversion ratio.

Effectiveness, by the way, look at the broad objective picture of whether or not the entity that uses the resources achieves it objectively.

The auditor may review the buying scheme of the organization to assess and assess whether or not it helps the entity to buy products or services at a low cost.

10. Review Financial Statements

Review Financial Statements is a sort of adverse commitment that involves auditors to review the entity’s financial statements. The audit will not, at the end of the assessment, state whether the financial statements are accurate and honest and free of content.

But the auditor will give the opinion that it is not known that the financial statements are not ready true and honest and free of content.

When an organization borrows cash from the bank, this type of service is usually needed. And as part of their strategy, banks require the entity to provide the external auditor’s economic statements.

11. Agreed Upon Procedures (AUP)

The agreed-upon procedure is the sort of adverse commitment where auditors conduct their evaluation of the client’s agreed processes. This sort of commitment is referred to as restricted certainty.

Although the processes are established by the client, auditors will also have to ensure that the company has sufficient funds to execute the work and the fee is not low.

It will also be necessary for auditors to ensure that there is no conflict of interest between the audit team and the client management team. If the auditor finds that a conflict of interest exists, the secure manual must inspect and implement the conflict reduction.

12. Integrated Audit

The integrated audit occurs when two distinct audit requirements are in place. There is, for instance, a financial audit together with a social audit or some regions needs to be verified with the financial audit.

For example, the NGO requires that its financial statements be audited together with technical areas for which those NGOs spend the money..

NGOs are working on public health, for instance, and most of the cash spent is public health linked. In addition to the expenditure reports that present the expenditure paid by NGOs and that need to be audited by the financial auditor, there are a number of technical reports such as health reports that need to be verified by technical auditors experienced in evaluating health reports.

This is called an integrated audit. The integrated audit is also carried out when the organization works in many distinct nations and the accounts are audited by distinct audit companies

13. Special Audit

The unique audit is a sort of audit task that the internal auditor usually performs. This occurred when the issue/case occurred in the organisation such as fraud, business case or other special cases..

There is a fraud in the payroll department, for instance, and this concern has been raised with the audit committee or the board of directors or there is sometimes the CEO’s request to have a unique audit in these fields. The unique audit is slightly distinct from the forensic audit as it is performed by the entity’s inner employees.

14. Operational audit

Operational auditing is kinds of audit services that focus on key processes, procedures, system, as well as inner control that aim to enhance productivity, as well as operational efficiency and effectiveness.

An operational audit also focused on the leakage of important controls and procedures that cause resource waste and then suggest enhancement.

Operational audit is a component of the internal audit and its primary objective is to add value to its professional services to the company. Also, systematic and extremely disciplined is the component that helps ensure the organization adds value to the operational audit.

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