TYPES OF AUDIT

Presented by: Kanika Goel Presented to : CA

Gyati Gupta
Roll no. : 66
Section : A
 ACKNOWLEDGEMENT
This project bears imprint of all those who have directly or indirectly helped and extended their
kind support in completing this project.
I would like to express my sincere gratitude to CA Gyati Gupta ma’am, my subject teacher, for
giving me this opportunity to undergo this lucrative project and for extending her guidance
throughout the assignment.
I would also like to thank my fellow classmates for their valuable support and assistance
throughout the project

KANIKA GOEL
 INDEX
1. AUDIT 14. OPERATIONAL AUDIT
2. IMPORTANCE OF AUDITING
3. TYPES OF AUDIT
15. SPECIAL AUDIT
4. EXTERNAL AUDIT 16. VALUE FOR MONEY AUDIT
5. INTERNAL AUDIT
17. GOVERNMENT AUDIT
6. COST AUDIT
7. MANAGEMENT AUDIT 18. BIBLIOGRAPHY
8. FORENSIC AUDIT
9. STATUTORY AUDIT
10.FINANCIAL AUDIT
11.TAX AUDIT
12.COMPLINCE AUDIT
13.INTEGRATED AUDIT
 AUDIT
• The audit is an art of systematic and independent review and investigation on a certain subject
matter, including financial statements, management accounts, management reports, accounting
records, operational reports, revenues reports, expenses reports, etc.
• The result of reviewing and investigation will be reported to shareholders and other key
internal stakeholders of the entity for their decision-making or other purposes.
• Audit reports sometimes submit to other stakeholders like the government, banks, creditors, or
the public.
• For example, the statutory audit report is submitted to the regulator or authority like the tax
department, the central bank, or the security authority.
• The audit is classified into many different types and levels of assurance according to the
objectives, scopes, purposes, and procedures of auditing.
IMPORTANCE OF AUDITING
• Audit is an important term used in accounting that describes the examination and verification
of a company’s financial records. It is to ensure that financial information is represented fairly
and accurately.
• Also, audits are performed to ensure that financial statements are prepared in accordance
with the relevant accounting standards. The three primary financial statements are:
1.Balance sheet
2.Cash flow statement
3.Income statement
• Financial statements are prepared internally by management utilizing relevant accounting
standards, such as International financial reporting standards (IFRS) or Generally Accepted
Accounting Principles (GAAP)
• Auditing is crucial to ensure that companies represent their financial positioning fairly and
accurately and in accordance with accounting standards.
TYPES OF AUDIT
Here is the list of 14 types of Audits :
1.External audit
2.Internal audit
3.Cost audit
4.Management audit
5.Forensic audit
6.Statutory audit
7.Financial audit
8.Tax audit
9.Compliance audit
10.
Integrated audit
11.
Operational audit
12.Special audit
13.
Value for money audit
14.
Government audit
EXTERNAL AUDIT
• External audit  refers to the audit firms that offer certain auditing services, including Assurance
Services, Consultant Services, Tax Consultant Services, Legal Services, Financial Advisory, and
Risk Management Advisory.
• The best example of external auditing services is the services these big four audit firms provide,
including KPMG, PWC, EY, and Deloitte.
• External auditors are normally referred to as audit staff who are working in audit firms. The
positions are ranked from audit associate, and senior auditors to audit partners, and managing
partners.
• This type of audit requires maintaining the professional code of ethics and strictly following
International Standards on Auditing and local standards as required by local law.
• The firms are working independently from auditing clients that they are auditing. If a conflict of
interest has occurred, proper procedures must be taken to minimize the conflicts.
INTERNAL AUDIT
• Internal Auditing is an independent and objective consulting service designed to add value to
the business and improve the entity’s operation.
• It provides a systematic and disciplined approach to evaluating and assessing risk
management, internal control, and corporate governance.
• The audit committee generally determines the scope of the Internal audit, the board of
directors, or directors with equivalence authorization. And if there is no audit committee and
board of directors, an internal audit normally reports to the entity owner.
• Internal audit activities normally cover internal control reviewing, operational reviewing,
fraud investigation, compliant reviewing, and other special tasks assigned by the audit
committee or BOD.
COST AUDIT
• Cost Audit is the detailed checking of the costing system, technique, and accounts to verify their
correctness and ensure adherence to the objective of cost accountancy.
• Cost audit is the verification of cost records and accounts, a check on adherence to the prescribed cost
accounting procedures, and the continuing relevance of such procedures.
• Cost auditing checks and verifies cost accounts’ accuracy, actuality, authenticity, and overall adherence to
the company’s cost accounting plan. This involves not only the examination of cost accounts but also the
fact that the plan prepared in this connection has been duly executed.
• A cost audit is an audit of the efficiency of minute details of expenditure in which the work is in progress
and not a post-mortem examination.
• The first function of a cost audit is verifying cost accounting records according to the cost accounting
system, and
• the second is checking on adherence to the cost accounting plan.
MANAGEMENT AUDIT
• A management audit is an assessment of how well an organization's management team is
applying its strategies and resources.
• A management audit evaluates whether the management team is working in the interests of
shareholders, employees, and the company's reputation.
• A management audit does not evaluate individual managers but rather the overall management
of the company in its ability to achieve its goals.
• The board of directors will hire independent consultants to conduct the management audit
rather than use the company's internal audit team.
• Once a management audit is complete, the external audit company will provide an entire plan
for the board of directors to implement to effect change.
FORENSIC AUDIT
• The forensic audit is normally performed by a forensic accountant who has the skill in both
accounting and investigation.
• Forensic Accounting is the type of engagement undertaking the financial investigation in
response to a particular subject matter. The findings of the investigation normally are used as
evidence in court or conflict resolution among the shareholders.
• The investigation covers several areas: fraud investigation, crime investigation, insurance
claims, and disputes among shareholders.
• A forensic audit is also needed to have a proper plan, procedure, and report like other audit
engagements.
• Forensic audit also needs to follow ethical guidelines like an audit of financial statements. This
kind of engagement is not so popular as an audit of financial statements or statutory auditing.
STATUTORY AUDIT
•  Statutory audit refers to an audit of financial statements for the specific type of entities required by law or local
authority.
• For example, all banking sectors require their financial statements to be audited by qualified audit firms authorized
by their central bank.
• The statutory audit might be different from financial statements auditing as the financial audit refers to the audit of
all types of entity’s financial statements, including whether both meeting or not meet the government’s requirements.
• However, statutory audit refers to only auditing the entity’s financial statements required by local law
• External audit firms normally perform the statutory audit, and the audit report will be issued by the auditor and
submitted to the government body by the entity. Not by the auditor.
• The best example of firms that offer statutory auditing is KPMG, PWC, EY, …. etc.
• The common criteria set by law that require entities to have their financial statements by qualified audit firms are
annual turnover, the value of assets, and the number of staff the entity employed.
 FINANCIAL AUDIT
• A financial audit is normally performed by an external audit firm that holds a CPA and is normally performed
annually and at the end of the accounting period. This type of audit is also known as financial statements auditing.
• But, sometimes, as required by management, bank, security exchange, regulation, or else, the financial audit is
also performed quarterly.
• Most entities prepare their financial statements based on IFRS, and some financial statements are prepared based
on local GAAP.
• For example, financial statements are prepared based on US GAAP for the entity registered in the US. If the
financial statements are prepared based on IFRS, the financial audit needs to be audited against IFRS.
• However, if the financial statements are prepared based on local GAAP, then the audit needs to be performed
against those local GAAP.
• The audit standards used by the auditor to conduct financial audits need to adopt international standards and local
law requirements
TAX AUDIT
• A Tax audit is a type of audit that performing by the government’s tax department or tax
authority.
• A tax audit could be performed as the result of in-compliant found by a government agency or
the schedule set by the government tax department.
• An entity needs not to invite or engage with the tax authority to come to perform a tax audit.
They will come by themselves. An entity just needs to file its tax obligation properly and
timely based on the country’s tax law.
• To minimize the penalty as the result of the tax audit, the entity is recommended to follow all
the requirements set by tax law and for those areas that they are not sure about, the entity
should engage with a tax consulting firm for advice. As mentioned above, the big four
firms also offer such a service.
COMPLIANCE AUDIT
• The compliance audit is a type of audit that checks against the internal policies and procedures of the
entity as well as the laws and regulations where the entity operates. Law and regulation here refer to the
government’s law where the business is operating.
• For example, in the banking sector, there are many regulations required for bankers to follow and comply
with.
• Most of the central banks require commercial banks to set up a complaint review (assessment) or
compliance audit to ensure that they comply with those laws and regulations.
• The entity may also assign its internal audit function to review whether the entity’s internal policies and
procedures are complying and effectively followed.
• A compliance audit  is part of the system used by the entity’s management to enforce the effectiveness of
the implementation of the government’s laws and regulations, and the entity’s internal policies and
procedures.
 INTEGRATED AUDIT
• Integrated audit happens when there are two different areas of audit requirements. For example, there
is a financial audit and a social audit, or some areas need to be confirmed with the financial audit.
• For example, NGOs require their financial statements to be audited, and the technical areas that those
NGOs are spending the money on need to be audited by a specialist auditor.
• For example, NGOs are working on public health and most of the money spent is related to public
health.
• Besides the expense reports that present the expenses that NGOs paid for and need to be audited by
the financial auditor, there are many technical reports like health reports that need to be verified by
technical auditors that have experience in assessing health reports.
• This is called an integrated audit. The integrated audit also happens when the entity operates in many
different countries, and the financial statements are audited by different audit firms.
OPERATIONAL AUDIT
• An operational type of audit is audit service that mainly focuses on key processes, procedures,
systems, and internal control. The main objective is to improve the operation’s productivity,
efficiency, and effectiveness.
• Operation audit has also targeted the leak of key control and processes that cause waste of
resources and then recommended improvement.
• Operational audit is part of the internal audit and their main aim is to add value to the business
and their professional services.
• Systematic and highly disciplined is also the part that helps to make sure the operational audit
adds value to the organization
SPECIAL AUDIT
• A special audit is a type of audit assignment that is normally done by the internal auditor.
• This happens when a problem/case occurs in the organization, like fraud, business case, or
other special cases.
• For example, fraud occurred in the payroll department, and this concern was raised to the audit
committee or board of directors, or sometimes there is a request from the CEO to have a
special audit on these areas
• The special audit is a bit different from the forensic audit as a special audit is done by the
internal staff of the entity.
• Once the auditor completes the audit, then the report is prepared by the audit team and then
submitted to the audit committee or board of directors. It is sometimes also reported to the
CEO of the entity
VALUE FOR MONEY AUDIT
• Value for money audit refers to activities that assess and evaluate three main difference factors:
Economy, Efficiency, and Effectiveness of entity operation.
• Economically, the auditor assesses and evaluates whether the resources that the entity purchases
are at a low cost with acceptable quality whereas efficiency audit, the auditor checks whether the
resources that the entity use have a better conversion ratio.
• Effectiveness, by the way, looks at the big picture of the objective whether the entity using the
resources meets its objective or not.
• The auditor might review the entity’s purchasing system to assess and evaluate whether it is
helping the entity to purchase materials or services at low costs or not
• Value for money audit is really important for the entity since it helps the entity improve resource
efficiency usage and make sure that the entity obtains good quality material at a low cost .
 GOVERNMENT AUDIT
• Government audits are performed to ensure that financial statements have been prepared accurately to
not misrepresent the amount of taxable income of a company.
• Audit selections are made to ensure that companies are not misrepresenting their taxable income.
Misstating taxable income, whether intentional or not, is considered tax fraud. The IRS and CRA now
use statistical formulas and machine learning to find taxpayers at high risk of committing tax fraud.
• Performing a government audit may result in a conclusion that there is:
1.No change in the tax return
2.A change that is accepted by the taxpayer
3.A change that is not accepted by the taxpayer
• If a taxpayer ends up not accepting a change, the issue will go through a legal process of mediation or
appeal.
BIBLIOGRAPHY
Following are the websites and links that have been used in completion of this
assignment :

 www.Investopedia.com
 www.wikiaccounting.com
 www.corporatefinanceinstitute.com
 www.slideshare.com