How To Categorise Audit Into Seven Different Types

August 21 , 2021

Many small businesses need to conduct audits to make sure their data is correct. Several organisations do not like the idea of auditing, but they are not aware of the fact that how much auditing is beneficial for their company.

What is an audit? It is a preliminary examination of all your financial records and day-to-day transactions. The process of auditing verifies all your evidence findings as correct and closes your books of accounts. The task of auditors is to monitor audit and look into your financial statements and balance sheets and match their amounts. They detect and resolve the discrepancies in the petty cash vouchers and bookkeeping records.

Many companies prefer to do auditing by themselves. The fair idea is to hire a third-party audit firm that gives unbiased decisions and prepares a clear report of your audit findings. Usually, an audit is done periodically, once or twice a year. It depends on your business as to how do you maintain your financial records. An audit will take less time if you follow a proper system of accounting. The categorisation of auditing is necessary to fulfil the requirements of your company.

Here are seven different types of audits for organisations:

Internal Audit

It is a kind of audit that is conducted inside your company. As an executive, you begin the process of audit and hire an internal auditor to complete it. An internal auditor’s job is to oversee the financial transactions and create a proper record of each transaction. He prepares the financial statements and balance sheets at the end of the year.

An internal auditor also deals with board members and stakeholders to update them on their profit on investment. The purpose of management internal audit is to observe the effectiveness of the transactions, keeping compliance with regulations, review financial data, and risk management.

External Audit

It is also better known as a statutory audit and performed by a third-party company. The firm can IRS or a tax agency. The statutory audit has no relation to your business. No employee of your company can be involved in the process of external audit, and an outside party entirely does it.

The external auditors strictly follow generally accepted auditing standards (GAAS). They present a fair and unbiased report to the board of directors based on their audit findings. It is a core purpose of external auditors to maintain the transparency and accuracy of financial records. Businesses hire a third-party agency to make sure their accurate data and determine the stable economic condition of a company.

Financial Audit

It is a simple and ordinary kind of audit that involves an external audit. In a financial audit, an auditor examines the accuracy and transparency of a company’s financial statements. It includes reviewing the transactions, procedures, and balances to conduct an audit. After performing the audit examination, the auditor delivers a report of his findings and shares his expert opinions to investors, lenders, creditors, and shareholders.

In his audit report, an auditor shares every minute detail of the audit process and describes his findings. He describes accurate, missing, and inaccurate financial records of transactions.

Compliance Audit

It is an audit of your company’s procedures and policies. The audit firm makes sure they comply with legal accounting standards and follow strict auditing practices. The purpose of a compliance audit is that your business complies with shareholders’ distribution and worker’s compensation. It also determines that your company abides by internal revenue service (IRS) rules and regulations.

Operation Audit

The process of conducting an operation audit works similarly to an internal audit. It analyses your organisation’s objectives, planning, processes, procedures, and workflow operations. Usually, the course of operational audits is done inside the company. However, it can also be handed over to an external third-party agency. The core aim of doing an operational audit is to inspect your business’s smooth and seamless financial operations and prepare a transparent audit report.

IRS Tax Audit

The internal revenue service audit is conducted to evaluate the accurate tax return filing of your company. Organisations hire statutory auditors to examine the liabilities and discrepancies in filing the tax returns. They also make sure there should be no blunder in the tax statement, and it comes out as correct.

Information System Audit

It is a kind of audit performed for software and IT companies. Businesses appoint experienced and qualified auditors to find and resolve issues in data processing, computer systems, and software engineering.

The primary purpose of an information system audit is to protect IT businesses from threats of hackers and online cybercrimes. Auditors make sure to provide the most accurate information to organisations and prevent unauthorised access to their private and confidential data.

Conclusion

Hence, in a nutshell, those mentioned above are the various audits essential for determining the stable financial position of organisations. Using these techniques, companies can evaluate the discrepancies in their financial statements and make a fair audit report to show all findings. Companies use the modern practice of audit data analytics to find out the issues and bring effective solutions for their better business growth in the future.

Also Read: 8 Mastermind Tips For Real-Time Audit Reporting