Advantages of Linear Model of Communication

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 :

 The audit of accounts of organizations that are not under any legal compulsion to get their accounts audited is known as a private audit . Whether or not to get the audit done depends upon the organization. That is why such an audit is also known voluntary audit. In such an audit the duties and rights of the auditor are determined on the basis of the audit agreement.

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 audit of accounts of government departments and institutions is known as government audit. The government maintains an Accounts and Audit Department for auditing the accounts of all government departments. The chief officer of this department is the Comptroller and Auditor General of India, and he is appointed by President of India, under the powers vested in him vide Article 148 of the Constitution.

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 :

 Some institutions are organized in such a way that like other employees it also appoints auditors as its employees. This is usually due to the reason that the organization thinks it necessary to appoint auditors as employees in order to prevent frauds and errors and manipulation of accounts .

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 :

 The examination of the books of accounts by the auditor throughout the year or at irregular or regular intervals is known as a continuous audit. In this manner, in a continuous audit, the auditor is occupied in examining the complete books of accounts at regular or irregular intervals. Such an audit is also referred to as a detailed audit or a running 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.

 " According to W.W. Bigg. A continuous audit is one where the auditor's staff is constantly engaged in checking the accounts during the whole year-round. " From the above definitions, it is clear that a continuous audit is one that starts at the beginning of the financial year and goes on till the end of the year. Visits of the auditor depend on his convenience or the necessity or urgency of the audit being done.

 The other aspect of such an audit is that the auditor's staff keeps on auditing the accounts at fixed intervals - like weekly. fortnightly or monthly --and the auditor gives his report at the end of the year. In other words, continuous auditing implies auditing the accounts of a business periodically at regular or irregular intervals when the accounts are being written.