Audits are an important part of any business. They help you to identify areas that need improvement and provide a roadmap for the future. There are many different types of audits, and it can be difficult to know which one is best for your company. In this article, we will discuss different types of audits so that you can find the right one for your needs!
Different Types Of Audit
( 1 ) Statutory Audit :
Certain organizations are established under specific legal
enactments and their working is also governed by the provisions of the
enactments.
It is legally mandatory for such organizations established under various enactments to get their accounts audited Hence, an audit of an organization which is legally mandatory under any enactment is known as statutory audit.
In such an audit,
the scope of the audit, the qualifications, and disqualifications of the
auditor, the rights and duties of the auditor, the remuneration of the
auditor and other audit-related matters are usually specified in the enactments
under which the organizations are established, In relation to a statutory
audit, the related enactment cannot be altered by an agreement, nor can the
rights and duties of the auditor are reduced in any manner even though the same
maybe enhanced by mutual agreement.
Hence, such an audit is often also referred compulsory
audit. It is mandatory for the following organizations to get their accounts
audited :
( 1 ) Joint Stock Companies registered under the Companies
Act, 2013 or any previous Act.
( ii ) Banking
companies covered under the Banking Companies Act, 1949.
( iii ) Insurance companies governed by the Insurance
Companies Act, 1938.
( iv ) Co-operative societies registered under the co -
operative societies acts of various states.
( u ) Public and
Charitable trusts are registered under various enactments related to religion.
( vi ) Local
governments and local authorities.
( vii Public Trusts registered under the Public Trusts Act.
( 2 ) Private Audit :
Some of the important objectives of such audits are
detection of frauds and errors, assessment of sales tax and income tax, the satisfaction of government officials, etc. Normally, the limits of such
audits depend upon the instructions of the appointor.
Such audits can be further divided into the following three
categories :
( a ) Audit of a
Sole Trader's Accounts :
It is not legally
compulsory for a sole trader to get his accounts audited, and the audit of the
accounts of a sole trader depend upon his personal wishes. Which and how many
accounts are to be examined, is also decided by him. Also the scope of the
audit, his rights and duties, and all other matters are decided on the basis
of the contract between the sole proprietor and the auditor.
It is necessary for
the auditor to clarify all conditions before commencing his work, and he can
commence his work only after receiving his orders in writing otherwise, in
case of any mishap in the future, he may be held liable.
( b) Audit of the Account of a Partnership Firm :
The audit of accounts of a partnership firm is also optional
since the audit of accounts of a partnership, the firm is not mandatory from the
legal point of view, However, normally most firms get their accounts audited
order to determine the share in the profits of the various partners.
The partnership deed also in some cases provides for the
audit of accounts. The rights and duties of the auditor are decided on the
basis of mutual agreements, and hence it becomes very necessary for the
auditor to examine these agreements in great detail.
In the absence of a specific agreement, the auditor should
study the provision of the Indian Partnership Act, 1932, in detail. Firms
usually get their accounts audited in order to settle accounts-related disputes
among the partners.
( c ) Audit of other Individuals and Institutions :
It often becomes necessary for a person to have a very large volume of income and expenditure to get their accounts audited.
The audit of accounts of such persons helps them in assessing
the honesty of their employees who maintain their accounts and also aids in the
assessment of income tax and expenditure tax.
Audit of accounts is also beneficial for people acting
through agents such as rent collectors and estate managers etc. some
institutions, such as clubs and public welfare societies, also get their
accounts audited.
Government Audit :
The Comptroller and Auditor General has a number of units
working under him, which audit the accounts of various government departments
.
Each such unit consists of a number of senior and junior
employees. Here, it must be kept in mind that government auditors are not
qualified as is the case of public accountants, and hence they cannot be
appointed as auditors of any other public institution.
Such employee
auditors work only for government departments on the basis of departmental
rules and regulations. In every state also there is a separate office of the
Accountant General, reporting to the Comptroller and Auditor General of India, which audits the accounts of state government departments.
The state governments
also have a Local Fund Audit Department which audits the accounts of municipal
authorities
The report on the accounts of the state government is
presented to the State Governor and is tabled in the State Legislative Assembly
.
Internal Audit :
These auditors are permanent auditors and receive salaries
like all other employees. In this manner, the periodic examination of the
accounts of an organization, by its employees appointed in the capacity of
auditors is known as an internal audit.
People possessing ordinary qualifications who are normally
appointed as accountants can do this work. It is not necessary for such
auditors to possess the degree of a Chartered Accountant.
The main aim of such an auditor is to examine the accounts
with the aim of removing any inaccuracy or irregularity contained therein and
strengthening the system of internal control.
Internal Auditors do
not submit a report on the accounts to the appointor, as is in the case of an
external auditor, but they keep on giving suggestions to the management for
the improvement of the accounts.
According to practicality audits can be divided into the
following categories :
( 1 ) Complete Audit :
If all the books of
accounts of an organisation relating to a specific are examined in detail, so
that no transaction or account or other related documents remain unexamined,
then such an audit is known as a complete audit.
In such an audit every transaction, entry , book, total ,
balance, vouchers, deed, and document is examined. Such an audit is legally
compulsory in the case of a company.
( 2 ) Partial Audit :
When instead of
examining all the books of accounts of a particular organization, only a a specific part of the books of accounts or only the books of accounts of a
particular period are examined, then such an audit is known as a partial audit
.
such audits are examining only the purchase book, sales
book, or cash book or examining the books of accounts only for the months of
November December and January, Partial audit is not practical. No appointor
would like to get a partial audit done and nor will any auditor agree to do it
.
The partial audit is resorted to only for the achievement of a
specific objective. If an auditor is asked to conduct a partial audit then he
should specify in his report that the same is based upon a partial examination
of the books of accounts.
If he does not do so, and any person suffers any damage on
the basis of the said report then the auditor shall be liable to such person
for such damages.
Continuous Audit :
Some prominent experts have defined a continuous audit as
under :
According to R.G. William, " A continuous audit is one
where the auditor and his staff are constantly engaged in checking the accounts
during the whole period, or where the auditor or his staff attends at regular
intervals during the period. " Spicer and Pegler define a continuous
audit as ' one where the auditor's staff is occupied continuously on the
accounts the whole year round, or where the auditor attends at intervals fixed
or otherwise during the currency of the financial year, and performs an
interim audit.