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Or
Types
of Audit
Or
Classification
of Auditing
It is
rightly said that method of maintaining accounts and their audit will be
largely dependent upon the organizational patterns of a business house.
Different types of audit on this basis may be as given:
Statutory
Audit
In case of many undertaking, audit is made compulsory under statute. It is so
because these undertaking are established by statute. The audit of their
accounts is termed as statutory audit.
The
following are the examples of such an audit:
Company
audit
Audit of
Trusts.
Audit of
other Institutions.
Private
Audit The
institutions which are private in character also get their accounts audited by
some qualified auditors. Such an audit is not required by statute. It is known
as private audit. These bodies have their own arrangements for audit and run
for their own interest so that their accounts may be subject to a close
scrutiny to be made by a professional accountant. There may be there of such
institutions:
Audit of
the Accounts of Sole Trade.
Audit of
the Accounts of Partnership firms.
Audit of
the Accounts of other Individual and Institutions
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Government
Audit The
Government maintains a separate department in the name of Accounts and Audit
Department which performs the audit of its different departments and offices.
This department is headed by the Comptroller and Auditor—General of India who
is assisted by different officials at various levels.
The duties
and liabilities of such auditors are not defined by statute. They are not
public auditors and hence, cannot be appointed auditors for public concerns.
They are meant for Government department and as such, they work according to
the department rules and instructions.
The
following are the objectives of the Government Audit:
To ensure
that the expenditure is incurred out of the fund which has been sanctioned by the
competent authority?
To verify
that the expenditure of the Government department is sanctioned in accordance
with the rules and regulations of the department concerned.
To see
that the expenditure already sanctioned has been incurred by an offer or officers
who are authorized to do so.
To see
that the payment has been properly classified as capital and revenue.
To verify
the existence and valuation of stores and the stock.
To ensure
that a proper system of system of stock taking has been adopted.
To see
that the payment has been made to an individual against some accounts under the
rules and it is to be recoverable, it has been recorded in the account
prescribed.
While
vouching receipts, it is to be ensured that such receipts are against payment which
have already been made and are recoverable as such. They are also recorded in
the prescribed accounts.
Internal
Audit The
Institute of internal Auditors has defined internal audit as given below:
“Internal
audit is the independent appraisal activity within an organization for the
review of the accounting, financial and other operations s a basis for
protective and construction service to the
and evaluation the effectiveness of other types of control which by
measuring and evaluating the effectiveness of other types of control. It deals
primarily with accounting and financial matters but it may also properly deal
with matters of an operating nature”
Internal
audit is the examination of books of accounts which is conducted by the
salaried officials of a business know as internal auditors throughout the year.
The scope of internal audit is a big different. It is more closely related to
managerial functions than to accounting duties. When an outside auditor would
ensure after scrutiny of accounts that such record are correct and are being
maintained in conformity with the relevant law, an internal auditor, besides
doing so would see that the work of the business is going on smoothly,
efficiently and economically. Internal audit is, thus, an independent appraisal
of activity within an organization for reviewing the accounting, financial and
other operations. It renders a productive and construction service to
management.
By virtue
of the organizational pattern, some business institutions appoint who are made
responsible to have a constant and regular review of their accounts.
Continuous
Audit ‘A
continuous Audit is one where the auditors 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 perform an
interim audit; such audits are adopted where the work involved is considerable,
and have many points in their favors, although they are subject to certain
disadvantages. -Spicer and Pegler
Continuous
audit is applicable in case of the following business house:
Here final
accounts are prepared just after the close of the financial year, as in the
case of a bank.
Where the
transactions are many in number and it is through necessary to get them audited
at regular intervals.
Where the
system of internal check in operation is not satisfactory.
Where the
statement of accounts are prepared after every month or quarter to be presented
to the management.
Where
sales affected are very large.
Annual
or final Audit
Annual
or periodical audit is done at the close of the financial or trading period
when final accounts are prepared. In such a case, the auditor visits his client
only a year and checks the accounts in one visit till he is not in a position
to cover the accounts pertaining to the whole of the period.
Such a
form of audit is very much convenient and useful for business house which are
small. For big ones, continuous audit is more useful because the work involved
in them is voluminous and hence final cannot be prepared at the close of the
financial year.
Besides,
there is a lot of difference between the two. The main distinction between
continuous audit and final audit is that the work under audit in the former
case does not cover the full verification of assets and liabilities. This work
is done only at the end of the year when the balance sheet is prepared and the
continuous audit is merged into the final audit. Other item may, however, be
verified from time to time during the course of the year.
This type
of audit is free from the defects of continuous audit and carries other
advantages with it, though, of course, detailed checking is not possible in it.
Hence, errors and fraud cannot be detected easily, quickly and completely.
Balance
Sheet Audit
As
is apparent from the name itself, in Balance Sheet audit, the auditor checks
capital, assets, liabilities, etc., given in the Balance Sheet. He checks only
those documents which are related to the items given in the Balance Sheet. Such
an audit is not conducted to check Profit and Loss account and similar other
transaction. The work of the auditors is confined to the Balance Sheet alone.
In India, no distinction is made between annual audit and Balance Sheet audit.
The balance
sheet audit is quite satisfactory for small or medium sized business. But for
big concerns having mechanized book keeping record such an audit would be not
only unsatisfactory but in many cases totally impracticable. There would have
been a large volume of transactions involving exhaustive summaries mad before
the totally eventually reaches the final account.
It is to
be noted that every transaction has an effect on the Balance Sheet and some
affect both the Profit and Loss Account and the Balance Sheet. For example, the
purchase of goods on credit will increase the liability to creditors, increase
the stock and will be show in the Trading Account as an increase in purchase
and close stock. Similarly, purchase of plant will increase plant and machinery
and reduce cash at bank, thus affecting only the Balance Sheet with those shown
in the previous year can prove the accuracy of the Profit and Loss
Accounts.
Cash
Audit In
cash audit, the auditor is concerned with the checking of cash transactions. He
has to audit entries pertaining to cash receipt and payment with the help of
relevant vouchers. Since his work is done under such restrictions and
limitations, he submits his reports accordingly. He can mention the fact in his
report.
Cost
Audit “By
the term cost audit is meant the detailed checking of the costing system,
technique and accounts to verify their correctness and to ensure adherence to
the objective of the accountancy” -Smith and Day
“Cost
audit is the verification of the correctness of the cost accounts and of the
adherence to the cost accounting plan.” -R.W. Dobson
From those
definitions, it would be seen that cost audit is performed in some special
circumstances but the purpose behind such an audit is to verify he cost
accounts so as to ensure how far cost accounting plans have been adhered to.
The Companies Act, 965 has made provisions to perform cost audit of certain
categories of companies under sections 209 and 233.
Complete
Audit When
an auditor is appointed to check each and every transaction, total, balance of
account with the help of the relevant vouchers, documents, correspondence, etc.
it is said to be complete audit. Under complete audit, nothing is to be left
from checking by an auditor. But complete audit is neither practicable nor
feasible.
Partial
Audit
In the case of complete audit, all the records and books of accounts are
subjected to audit by the auditor but when audit is conducted on some of the
records and books of a part or whole of the period, it is called Partial Audit.
Partial Audit may relate to some part of the work for some or whole of the
trading period. Partial Audit is not practicable again.
Detailed
Audit It
is a bit different from complete audit. When in complete audit, all the books
and records are completely checked, Detailed Audit involves detailed and trough
scrutiny, but not ‘complete’. Detailed work is through, of course but not
compete in the strict sense of the term. Hence, detailed audit entails an
exhaustive scrutiny in to the accounts. Detailed may be done through applying
test checking.
Interim
Audit An
annual audit is one which is complete at the close of the financial year and an
Interim Audit is that kind of audit which is conducted for a part of the
accounting year with some interim purpose. Such an interim purpose may be, for
example, declaration of an interim dividend by a joint stock company. Interim
audit involves a compete audit of the accounts prepared and closed for a part
of the data of a set of interim accounts. Quarterly or half year accounts.
Management
Audit Some
of the auditors have synonymously used the terms, ‘Management Audit’ and
‘Efficiency Audit’. However, it can be a said that the management audit is an
audit conducted to examine all aspects of management in a business. Improvement
in efficiency and maximum utilization of resources of a business are the tools
for its success.
In this
age of cut throat competition, every businessman wants to attain goods success
in his business career for which he is at all times, eager to know how he can
be successful and for that, what changes should be made. Thus, the management
audit include the examination of every activity of a business, i.c., plans,
objectives, means of operation, utilization of physical resources,
organizational pattern, co-ordination of various activities at all levels and
control of the entire business.
The
management auditors have to evaluate the overall performance which includes
account books too and he has to submit report stating whether the
pre-determined targets and objectives have been achieved or not. As an
outsider, he looks to the affairs of the business from an impartial, unbiased
and objective point of view. The management audit is, a however, a voluntary
from of audit and is related to the process of management.
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Property
Audit While
the Property Audit is confined to examine the validity of appropriations or is
concerned with verifying that there is no leakage of revenue and wastage of finds
knowingly or unknowingly in disregard to any legal requirement or financial or
economic consideration, the performance audit is a procedure for analyzing the
profit and loss of economic activities carried on by the business enterprise,
examining the relationship between production and sales and discovering the
avenues for maximizing profits.
Operational
Audit The
idea of Operational Audit is of recent origin and has become a matter of wide
concern with the expansion of industrial and economic activities. The
operational audit is desired to aim at improving the profitability of an
industrial enterprise and also at achieving the other organizational
objectives, social and otherwise.
Usually,
such an audit is conducted by internal auditors but when external auditors
carry it out, it is in the form of management consultancy services. The
Operational Audit is in a way over and above financial audit and has sole
purpose of improving future business operations carried out by the management.
Environmental
Audit The
topic of ‘Environmental Audit’ is new and is in a very nebulous state. It
covers a wide range of services, methodologies, assessments, investigations,
result, etc. and as such, if encompasses a multidisciplinary approach. The
Canadian Institute of Chartered Accountants observes.
The C.A.
profession faces an unprecedented opportunity and challenge to significant
emerging needs an expectations arising from concerns to protect the environment
for future generations. The profession has much to contribute in shaping future
mechanisms for environmental accountability more than it sometimes realizes;
more than may have previously recognized.’
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