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22 CLASSES/CLASSIFICATIONS/TYPES OF AUDITS
In this article we are going to discuss about various important 22 classes/classifications/types of audits like types on the basis of ownership, on the basis of periodicity, on the basis of objectives, on the basis of scope, on the basis of employer, on the basis of checking. We are discuss this points in detail.
A) On the basis of Ownership
B) On the basis of Periodicity
C) On the basis of Objectives
D) On the basis of Scope
E) On the basis of Employer
F) On the basis of Manner of CheckingLets we discuss the above types of audits in details.
A) On the basis of Ownership
1. Private Audit:
It is the audit of accounts or any other situation by private organizations like sole proprietorship, partnership firms and non-trading organizations. There is no statutory compulsion to get the accounts audited, for such organizations. If he turnover or receipts exceed a specific limit, tax audit is required under the Income-tax Act, 1961.
2. Government Audit:
Government audit is the audit of accounts of Union of India, States, Government Departments, Government undertakings and local bodies. The auditors appointed for a government audit are called Government Auditors and their appointment is in accordance with the provisions contained in the Constitution of India.
3. Statutory Audit:
When an audit is conducted as per statutory requirements, it is called a statutory audit. Bank, Insurance Companies, Joint Stock Companies Co-operatives and Trusts are required by the respective statutes, to compulsorily get their accounts audited.The auditors who conduct the statutory audit are called ‘statutory auditors’.
So these are the 3 types of audits on the basis of ownership.
B) On the basis of Periodicity
1. Continuous Audit:
It involves the examination of books of accounts at regular intervals of, say, one month, or three months. The auditor either visits the client’s business at regular intervals or checks each and every transaction. This type of audit is sometimes called ‘detailed audit. It is suitable in case of large organizations.
2. Annual Audit:
Audit that is conducted at the close of the financial period, after the final accounts are prepared is called the annual audit, final audit or complete audit. Such an audit may commence before the final accounts are prepared and may continue even after the close of the financial year. Since, audit work is completed in one continuous session it is also called a complete audit. The Auditor visits his client only once a year
3. Interim Audit:
Many companies declare their half-yearly and quarterly results, on the basis of audited accounts till the close of the period concerned. The audit which is conducted in between two annual audits, with a view to finding out the interim profits is called an interim audit.
4. Occasional Audit:
Organizations like sole trading concerns, partnership firms etc. are not required by law to get their accounts audited. But, due to the various benefits that accrue to a business, due to auditing, these organizations go for auditing. Some of these entities get their accounts audited whenever they suspect error or fraud, or whenever the need arises like for claiming insurance amount, on admission, death or retirement of partner in case of partnership firms, or in case of sale of business etc.
5. Concurrent Audit:
It is a system of audit prevalent in large banks and large branches of banks. It is an examination which takes place on the occurrence of transactions or an examination which is carried out at the earliest. The object of such an audit is to ensure adherence to prescribed systems and procedures and timely detection of irregularities.
So these are the 5 types of audits on the basis of periodicity.
C) On the basis of Objectives
1. Financial Audit:
Independent financial audit is conducted for the purpose of ascertaining whether the Balance Sheet and Profit and Loss account of a business shows true and fair view of operating results and financial position of the business. It is conducted by professionally qualified auditors. It is compulsory for Joint Stock Companies, Trusts, Government undertakings and departments etc. and is optional in case of sole proprietorship, partnership firms etc.
2. Cost Audit:
Cost Audit is audit of cost analysis records of the company. It is checking of cost accounts and costing techniques, methods, systems followed by the entity. The cost auditor seeks to verify the truth and fairness of cost of production of goods or rendering of service by an entity. As per the amendments to the Companies Act 1956, a cost audit is compulsory in case of specified companies. Cost audit is conducted in the manner laid down in the Cost and Works Accountants Act, 1959.
3. Operational Audit:
It is a review of operations of an entity. It’s generally carried out by internal adjudicators. It involves intelligent examination of colorful operations of functional areas of the business,viz. product, marketing, stores etc
4. Management Audit:
It is an audit to review, examine and appraise the various policies and practices of the management on the basis of certain standards. For example, clarity in downward communication, organizational hierarchy, departmentation, the quality of control systems etc.
5. Tax Audit:
The Income-tax audit has been made compulsory for specified persons under the provisions of Income-tax Act, 1961. Tax audit is an examination of financial records to assess, the correctness of calculation of taxable profit to ensure compliance with provisions of the Income-tax Act, 1961 and also to ensure fulfilment of conditions for claiming deductions under the Act.
6. Social Audit:
It is an audit to review the non-financial impact of an organization on the society. Awareness of social responsibility of business has increased in recent years. Corporations that are socially responsible, require social accounting information for making management decisions.
7. Environment Audit:
Environment audit is also called a green audit. An audit of the impact of the activities of an organization on the environment is called ‘Environment Audit’. Its purpose is to ensure that the organization has clear environment protection policies, that its operations comply with the stated environment policies and that its policies are subject to regular review. Environment audit may be conducted by a technical person from within the organization or may be done externally by environment consultants. The areas covered by a ‘green audit include energy usage, wastage recycling procedures, conservation of raw materials and adoption of cleaner technology
8. Propriety Audit:
Propriety audit goes beyond financial impact of the actions and decisions of the management, to verify if the actions are in public interest and are in accordance with the accepted standard of ‘Proper Conduct’. For example, in case of promotion of an employee, propriety audit will find out whether the promotion is justified keeping in view the policy of the organization, the efficiency of the employee, the extent of fairness considering the performance of other employees in the same field.
9. Performance Audit:
It is concerned with the evaluation of performances compared with the set standards. The auditor examines how far, maximum output is achieved for a given input or minimum input is used for a given output. Actual performance is investigated if it deviates from the pre-determined standards of performance.
So these are the 9 types of audits on the basis of objectives.
D) On the basis of Scope
On the basis of coverage of audit, there can be complete audit and partial audit. Statutory audits are complete audits. Partial audits are audits of stated books of accounts only. These kinds of audit are found in case of private audits. For example, the client may ask the auditor to audit only cash transactions, to ensure that no fraud has taken place.
E) On the basis of Employer
1. External Audit:
An audit is said to be an external audit if the auditor is appointed by persons other than those whose performance is to be evaluated. For example, an auditor for a financial audit may be appointed by shareholders to ensure that their funds have been properly utilized by the Board of Directors. An External adjudicator is an independent person.
2. Internal Audit:
Internal audit is conducted by an auditor who is appointed by persons who are responsible for the performance of the entity. An internal auditor is usually appointed by the management. He becomes a regular employee of the organization. The Directors may ask the auditor to devise an effective system of internal control, so as to prevent the occurrence of errors and frauds. The internal auditor is not independent. He has to work for the management and work as per the instructions given to him.
Features of Internal Audit :
1. It is a function of internal management.
2. It involves a continuous and critical appraisal of the functions of the organization.
So these are the 2 types of audits on the basis of employer.
F) On the basis of Manner of Checking
1. Balance Sheet Audit:
Balance Sheet audit is of recent origin. “Balance Sheet audit means verification of the values of assets, liabilities, the balances of reserves and provisions and the amount of profit earned or loss suffered by a firm during a year”. Balance sheet audit will automatically include the audit of Profit and Loss account as Profit and Loss account balance does appear in the Balance Sheet. Balance Sheet audit is a kind of partial audit.
2. Post and Vouch Audit:
It is an audit where the auditor checks each and every transaction right from its origin in the books of prime entries till they are posted. It is an outdated method of auditing, especially in case of large organizations. The adjudicator relies on the examination of some of the deals scientifically named. In case of suspicion of fraud, he conducts detailed examination of the concerned item.
So these are the 2 types of audits on the basis of manner of checking.
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