Types of an Audit

1. TYPES OF
AUDIT
L. Prakash Kannan, M.Com, M.Phil.,
(Ph.D.), Assistant Professor,
S.J. Monisha, II B. Com,.

2. Audit
– The word “Audit” is derived form the Latin word “Audire” which means “to
hear”. Audit means examination of books, accounts, vouchers and other
documents of a business in order to see that the Balance Sheet exhibits a true
and fair view of the business as on a particular date and that the Profit and Loss
a/c gives a true and fair view of profit or loss for a particular period. It does not
mean merely to see the arithmetical accuracy of the books of accounts. It is an
instrument of financial control.

3. Types of Audit
– Statutory Audit
– Private Audit
– Government Audit
– Internal Audit
– Continuous Audit
– Interim Audit
– Partial Audit
– Balance sheet Audit
– Audit in depth
– Cost Audit
– Management Audit

4. Statutory audit
– Many undertakings have been established by statute or law which makes audit
compulsory. Th audit of such undertaking’s accounts is known as statutory
audit.
– For example
– Joint stock company - Companies Act 1956
– Audit of trust - Public Trust Act
– Co-operatives societies - Co-operatives Societies Act, 1912
– This type of audit gives an assurance to the beneficiary that the trust income is
not misappropriated. It also safeguards the trustees from earning a bad
impression among the public regarding trust acivities.

5. – Where audit is not compulsory under any statute but it is undertaken by some
qualified auditor for the satisfaction of the owners, it is called private audit.
– For example
– Audit of individuals
– Audit of sole traders
– Audit of partnership firm
– Audit of schools and colleges
– In this case, the agreement is the final document. In case, the auditor is
charged with negligence, he can protect himself by producing this agreement.
Private audit

6. – The audit of accounts of government departments and departmental undertakings
is called Government Audit.
– For example
– Audit of government offices and departments
– Audit of government undertakings registered as companies
– Audit of government undertakings not registered as companies
– Article149 gives the powers, rights and fixes the responsibility for the audit of
government departments and undertakings.
– The staffs of the Comptroller and Auditor General are appointed of government
departments and undertakings.
Government audit

7. Internal audit
– Internal Audit is a continuous and systematic process of examining and
reporting the operations and records of a concern. It is done in addition to the
statutory audit, when commercial firms or companies grow beyond certain
limits.
– Internal audit may be done by,
– Independent persons or agencies appointed for special purpose.
– A separate department within the company.
– Employees of the company appointed for this purpose. Internal auditor may or may
not be chartered accountants.

8. Continuous Audit
– A continuous audit is one in which the audit staff is engaged continuously in
checking the accounts through out the financial period.
– The auditor visits the particular concern at regular or irregular intervals. At the
end of the financial period the auditor checks the financial account.
– This type of audit is suitable for big concerns.

9. Interim Audit
– An audit conducted in between tow annual or periodical audits is called interim
audit.
– It is conducted with a view to finding out interim profits, to enable the company
to declare interim dividend and to get periodical data of the turnover, gross
profit, etc., to help the management for taking various decisions.
– This type is audit is suitable for declaring interim dividend at the time of
admission, retirement or death of a partner.

10. Partial Audit
– A partial auditing is an audit that is conducted considering the particular area of
accounting. Under partial audit, audit of the whole account is not conducted.
Only the audit of the particular area where the owner thinks it is essential to
conduct an audit will be conducted. Normally, business transaction is
concerned with cash, debtor, creditor etc.
– A business may conduct an audit of any of these transactions. Method of
conducting such audit is identical to other audit but an auditor needs to sign the
report clearing stating the ‘partial audit’.

11. Balance sheet audit
– Under this type the changes in the assets and liabilities on two balance sheet
dates are verified to ascertain whether, the true and fair financial position of
the company is brought out in the balance sheet.
– This type of audit is suitable for very large companies.
– Much of the work of vouching, posting, casting and other routine audit is
eliminated.
– It consists of the complete verification of all items contained in the balance
sheer and the other related items.
– It is useful to examine items of unusual nature and items affecting the balance
sheets.

12. Auditing in depth
– Under this type, a detailed step by step examination of the selected transaction
is made. A complete analysis of the systems and procedures of the business is
made with a view to ascertaining the reliability of the internal check and
control.
– This type of audit is suitable for large manufacturing concerns.
– This type of audit is undertaken by highly skilled and experienced auditors.

13. Cost audit
– Cost audit means the complete examination of the cost records of the company.
Here, the auditor verifies the correctness of the costs records of the company.
– This type of audit is suitable for companies which are engaged in production,
manufacturing, processing and mining activities.
– To ensure that the cost accounting plan as laid down by the company is carried
out.
– To act as an effective managerial tool for the detection of errors, frauds,
inconsistencies and irregularities.

14. Management Audit
– Management Audit means the audit of management processes and functions.
Here, the auditor examines the policies and the actions of the management to
ensure that there is a proper and maximum utilization of the available
resources.
– This type of audit is suitable for big business concerns.
– Only a person having god knowledge and experience of management
techniques may be appointed as Management Auditor.