In the field of accounting, you might already hear the word “audit” or “auditing”. This is because auditing is one of the very important processes in accounting. But first, what is auditing?
In the ISO 19011:2011—Guidelines for auditing management systems, audit is defined as a systematic, independent and documented process for obtaining audit evidence [records, statements of fact or other information which are relevant and verifiable] and evaluating it objectively to determine the extent to which the audit criteria [set of policies, procedures or requirements] are fulfilled.” In general term, an audit is an investigation of an existing system, report or entity. There are a number of types of auditing in accounting which can be conducted.
Types of Audit in Accounting
1. Compliance Audit
Commonly used in educational institutions and regulated industries, construction audit involves examining the policies and procedures of a department, to check whether it is in compliance with internal or regulatory standards.
2. Construction Audit
This involves analysis of the costs incurred for a specific construction project- this is to ensure that the costs incurred for that construction were justifiable. 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.
3. Financial Audit
The most commonly used type, financial audit is the analysis of the fairness of the information contained within a department or entity’s financial statements. This is usually conducted by a CPA firm, which is independent of the department under review.
4. Information Systems Audit
This type review all of the controls over software development, data processing and systems access. It ensures that there would be no issues that could damage the quality of IT systems in providing accurate data and information to users. It also ensures that only authorized people will have access to the data of the system.
5. Investigative Audit
This type of audit investigates a specific area or individual for fraud or inappropriate activities. It also locates control breaches and collects evidence for charges against someone.
6. Operational Audit
It analyzes the goals, planning process, procedures and results of the operations in detail. This type of audit may be conducted by an internal or external entity, and provides evaluations of operations and recommendations for improving the overall operation of the business.
7. Tax Audit
Last but not the least, this type of audit analyzes the tax returns submitted by an individual person or a business entity. This is to check if the tax information and any resulting tax income are valid. These audits are usually targeted at returns that result in excessively low tax payments, to see if there is a need for an additional assessment.
“Most businesses invest their time and money in this types of an audit that will be done in their business and it’s easy to know why. Auditing ensures a smooth- sailing financial management in your business and you’ll be also more protected from fraud and any kind of illegal actions. Understanding the basics of auditing and its types is a great starting step for every business owner- you give your business the opportunity to grow.”
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