What are the Different types of audit? Here they are – Audit can be classified in different ways. But majorly, there are internal Audit and External Audits. Within this two categories anything can be audited. Another way of looing at audit is Statutory and no-statutory (administrate) audit. Therefore, one way or the other all the enumerated types of audit in this post can be classified under the first category or the second category.
What are the Different types of audit?
As a matter of fact, small business owner need to conduct regular audits to ensure their records are complete and accurate. Even though they don’t always like the idea of audit, this post will help show you what your business stand to benefit from it. So, grab these different types of audit and their benefits below
Wat is Audit?
To start with , an audit is a process to examine your business financial records and transactions to verify they are complete and accurate. Typically, auditors look at your financial statements to compare with your accounting books information. The essence is really to ensure that the accounting books are the sources for the information on the financial statements.
You or your employees may conduct audits. This is called internal audit. Or, you might have a third party audit your information. This’s called external audit. As a matter of fact, most of the internal audits are non-statutory while the external audits are statutory. So, many business owners have routine audits, such as once annually. However, in general, where you re not organized and don’t keep thorough records, your audits might take more time to be complete. Types of audits may also depend on type of business. For example, construction project accounts re always carried out by a construction companies to find out the exact cost of completing the project. In total, audits assist you to ensure that your business is operating optimally. Now, you can ask, what are the various types of audit?
Different types of audit: What are the Different types of audit?
We had state above that within internal nd external audit; statutory and non-statutory audit, anything can be audited. So, here are various types of audit you can carry out in your organization. Some are statutory while others are non-statutory. As stated above too, most of the non-statutory audits ae internal audits. Please, read on now.
Internal audits are those that take place within and by your business. The proprietor initiates this and either heads it or ask a staff to do so. However, entities that have shareholders or board members normally have an accounts department called Internal Audit Department. So, such organizations may then uses their internal audits. This is one of the ways to update them on the business’s finances. In fact, , internal audits are a good way of assessing the entities financial goals, especially where there is a budget or business planning in place.. So, there are many reasons you may wish to conduct an internal audit. Now, check some common reasons below;
- Proposed plans for improvements/Expansion
- Monitor efficiency and effectiveness
- Ensure compliance with laws and regulations – especially where there are government or industry regulatory agencies.
- Verify to review financial information
- Ensure accuracy, completeness and timeliness
- Authentic risk management policies and procedures
- Appraise operation processes
This type of audit is usually conducted by a third party and are in most cases statutory. This audit could be done by a qualified accountant engaged by the entity. It can also be done by staff of the Internal Revenue Service (IRS) or a tax agency. In this regard, the external auditor is an independent entity that must not have any connection with your business. Such professionals follow duly the generally accepted auditing standards (GAAS).
Just as we had it in the internal audits, the main objective of an external audit is to determine the accuracy of accounting records. These are the things the internal and external users of the audit report require to know about your entity. Therefore, the investors and lenders always require external audits to ensure the business’s financial information and data is accurate, fair, complete and timely.
This is the audited report from the external auditors. This report gives you among other things details of the audit process and their findings. Such report normally harmers on whether your financial records are accurate or inaccurate. It could also indicate staff or system lapses.
Tax audits are are also external and statutory. It’s usually conducted to assess the accuracy of your company’s filed tax returns. Tax Auditors look for discrepancies in your business’s tax liabilities. So, they check the tax liability computations for accuracy and completeness. This is to ensure that your business did not overpay or underpay taxes. In fact, the tax auditors review possible errors on your tax return. It’s worthy of note that companies who always file zero tax return or ask for tax refund attracts Tax audit.
This is one of the most common types of audit. This can be internal or external. However, the type that makes a wave here are the external financial audits. At this audit, the auditor carries out several analyzes. He does this to ascertain the accuracy and fairness of the financial statements.
Recall that what they are auditing is the management accounts. So, the auditors must review the transactions, procedures, and balances in the management accounts in conducting the financial audit. That is why they must ascertain the accuracy and fairness of the financial statements. These are always the basis for their audit opinion. Their opinion could be give approval or qualify the report. This auditors opinion is always crucial to the business lenders, creditors, investors, and government agencies, especially regulatory agencies. .
These are like the internal audits described above. This is done where there are plantings and budgets. Therefore, operational audit analyzes a company’s goals, planning processes, operational procedures, and operation results as against the budgets. Variances are always noted and scrutinized. Time lines and benchmarks are reviewed.
As noted above, operational audits are conducted internally. However, it can also be external. Therefore, whether done by internal experts or external ones, the goal is to fully evaluate a business’s operations and ascertain ways to improve on them.
This type of audit i carried out o examines your business’s policies and procedures. This is with the view to ascertaining if they comply with internal or external standards. Compliance audits can help determine whether or not your business is compliant with paying workers’ minimum wage or meeting up with statutory taxes. For instance, it could be conducted to determine if it complies with SCUML regulations and other contract bidding compliance certificates.
Information system audit:
This type of audit mostly impacts software and IT companies. Therefore, information system audits assists your business detect issues relating to software development, data processing, and computer systems. In fact, information system audits ensure the system provides accurate information to users and makes sure unauthorized parties do not have access to private data.
Furthermore, It’s advised that IT and non-software businesses should regularly conduct mini cybersecurity audits. This will help them to ensure their systems re secured from fraud and hackers.
This is a payroll process examination. This is to ensure that they are accurate. In conducting this audit certain payroll variables re to be watched. These include the pay rates, total wages (gross and net), tax withholdings, and employee information.
Payroll audits are usually and internal process. However, where there re gross misconducts, external auditors may be engaged. Where internal payroll audits re done well, it helps prevent errors and misconducts that could possibly lead to engaging an external audits in the future.
As a matter of fact, organizations are advised to do this audit annually. Certain times this audit could lead to general staff welfare review.
This is not the same as pay roll audit. Instead, it’s a specific aspect of payroll audit. This audits helps you identify pay discrepancies among your employees. A pay audit can help you spot unequal pay to same category of staff in your company. Therefore, this audit majorly strife to analyze disparities due to race, religion, age, and gender.
In fact, Pay audits will always assist you to ensure workers are paid fairly. This is based on your business’ or industry standards.
Summing Up: What are the Different types of audit?
This post brought to you the meaning of audit and who does it. It also gave highlights of its segments of internal and external audits. There are 10 types of auditing examined in this post. Our subsequent post on this article will examine forensic and other specific audits. To continue reading you can click here. Meanwhile, in the next paragraph are other related topics that will help your understanding of this subject matter.
As a matter of fact, reading these topics in connection with one another will help you to have a broad knowledge of this topic. For business men and women reading these topics is important. But, I wish to say that for academic students, reading them comprehensively is a must. Just click on at least 3 of them to start with.
- Importance of Auditing system for Your Company
- Why Need Internal Auditing Your Business?
- Why Do You Need External Auditing Your Business?
- DOES AUDITING AND ASSURANCE SERVICES COMPARE
- How Much Do You Need Accounting and Auditing Services?
- How to Prepare Business Plan Financial Analysis Segment.
- Business Plan Financial Templates
Finally, d you wish to contact us for your auditing, accounting, and start up processes? That is simple, send mails to email@example.com or call +234 8034347851.
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Founder/Managing Partner of Complete Full Marks Consultants Ltd. An Economist turned Chattered Accountant and Tax Practitioner with over 37 years of industrial experience.