Types of Audit
Classification of Auditing:
- Continuous or detailed.
- Periodical or final audits.
1. Continuous Audit:
This is useful in case of big companies with larger business which have scope for keeping the audit staff busy year round or auditors may attend to auditing at intervals fixed or otherwise, and perform an interim audit. In this case, routine business goes on simultaneously with the audit work.
2. Periodical or Final Auditing:
After the completion of the financial year audit work is undertaken which goes on continuously till its completion. This system is the most satisfying from the auditors point of view.
In general, an audit is an investigation of an existing system, report, or entity. There are a number of types of audits that can be conducted, including the following:
- Compliance audit: This is an examination of the policies and procedures of an entity or department, to see if it is in compliance with internal or regulatory standards. This audit is most commonly used in regulated industries or educational institutions.
- Construction audit: This is an analysis of the costs incurred for a specific construction project. Activities may include an analysis of the contracts granted to contractors, prices paid, overhead costs allowed for reimbursement, change orders, and the timeliness of completion. The intent is to ensure that the costs incurred for a project were reasonable.
- Financial audit: This is an analysis of the fairness of the information contained within an entity’s financial statements. It is conducted by a CPA firm, which is independent of the entity under review. This is the most commonly conducted type of audit.
- Information systems audit: This involves a review of the controls over software development, data processing, and access to computer systems. The intent is to spot any issues that could impair the ability of IT systems to provide accurate information to users, as well as to ensure that unauthorized parties do not have access to the data.
- Investigative audit: This is an investigation of a specific area or individual when there is a suspicion of inappropriate or fraudulent activity. The intent is to locate and remedy control breaches, as well as to collect evidence in case charges are to be brought against someone.
- Operational audit: This is a detailed analysis of the goals, planning processes, procedures, and results of the operations of a business. The audit may be conducted internally or by an external entity. The intended result is an evaluation of operations, likely with recommendations for improvement.
- Tax audit: This is an analysis of the tax returns submitted by an individual or business entity, to see if the tax information and any resulting income tax payment is valid. These audits are usually targeted at returns that result in excessively low tax payments, to see if an additional assessment can be made.