Types of Audits that are performed in an Organization

Types of Audits that are performed in an Organization

What is Auditing Process?

According to Lawrence, Auditing is the process of examination of the books of accounts of a business with the aim of giving a clear view of the financial position of the business within a given period of time. The scrutinizing process is usually performed by either an internal or an external auditor. Thus organization depends on different types of audit in order to accomplish their goal and objectives due to the fact that the accounting process is not sufficient to determine the exact financial position of the business. 

Different Types of Audit

Here is the list of different types of Audit needed to perform the process of Auditing.

Financial Audit

A financial audit is also referred to as an internal audit. A financial audit is performed to determine the accuracy of the information entered in the books of accounts. Company laws in different countries mandate that each and every year a financial audit should be conducted in a company. Majorly, the government and other stakeholders are interested in the financial audit to actually determine the financial position of a business for taxation among other purposes. The owners of the company may also be in a good position to ascertain if the figures provided by the board of directors are free from material misstatement.

Operational audit

The process is also referred to as an internal audit. The main aim of conducting an operational audit is to;

  • To guarantee the effectiveness of the internal controls
  • To avoid the occurrence of certain risks in a business
  • To ensure that the organization objectives of the business are achieved.

Most at times, the organization employees are tasked with the role of internal audit in the organization. At the end of the auditing process, the employees report to the auditing committee who can verify the whole auditing process. Internal audit is comprehensive in nature and they not only deal with the auditing process of financial accounts but also on salient matters that affects the operations of the business.

Activities Performed in the Internal Auditing Process

The activities include:

  1. Checking the effectiveness of Internal controls
  2. Identifying instances of fraud in an organization
  3. Reviewing the financial information
  4. Verifying the Operational information

Forensic Audit

Forensic audit combines auditing and investigative skills in some situations that may have some legal implications. It involves the evaluation and examination of finances for the sole purpose of using the information in court. The intent of the forensic audit is to prosecute an individual for embezzlement of funds. Instances that could be covered by forensic audit include fraud bankrupt divorces and business closure. Corruption, theft, inventory, and extortion.

Instances where Forensic Auditing Services may be required

  • During fraud investigation where funds may be misappropriated in a business.
  • When quantifying a loss in the case of insurance claims. A forensic audit is required to determine if the insurance claims are valid and there are of instances of overcompensation or under compensation
  • While determining claims of professional negligence in the accounting profession

A certified public accountant is tasked with the responsibility of collecting evidence. Basically, the amount of evidence collected depends on the scoop of the auditing process.

Public Audit

Public sector auditing is the basis for effective governance in the public sector. The process of public sector auditing involves conducting both an internal and external audit. In most countries, the information derived from the public sector auditing see to it that there are accountability and transparency in the public sector. This ensures that there is no misappropriation of funds and funds are used as they were intended to.

The role of Public Sector Auditing

  • The process ensures that there are transparency and accountability in the public sector organization.
  • The process checks on other government responsibilities to the public like, the provision of an oversight role that will ensure that there is good governance
  • The auditing process establishes recent trends and some emerging issues in accounting and the auditing process.

It’s of vital importance to ensure that the public auditing process is free from interference by the government and other entities. Therefore a good public sector auditing process should be conducted by competent and objective staff… The public auditor needs to take oversight, detection and foresight role in the whole of the auditing process and ensure that there is integrity in the whole process.

Tax audit

(Kircher, 2008) defines tax audit as the process of examining individual and organization tax reports. Tax audit ensures that cooperates and individual pay the right amount of tax. The audit process ensures that there’s no under or over taxation of individual and firms. Basically, taxes are a vital source of government revenue and an under taxation and over taxation in one way or another affects economic growth and development.

Methods used to select individuals for tax audit varies from one country to another. In the USA to begin with, the selection methods include the third party documentation where individuals are required to file their yearly returns to the government through the filling of a form. The method is prevalently used in many countries and it has proven to increase tax collection for years.

Factors that may lead to a tax audit

  • Embezzlement of funds triggers the government to conduct an audit to see into it that government resources are adequately utilized.
  • A rapid decrease in the government income during a given financial year
  • Having the larger amount of money in offshore accounts may trigger a tax audit. Most at times government officials and businessmen are subjected to frequent audit.

Information System Audit

The audit enhances information systems privy to the IT sector. The audit may be performed by internal or external auditors. Information arrived in this system may be relevant in that:

  • It helps in the designing some internal controls of the IT system.
  • The audit may enhance the effectiveness of the operating system and update the system to recent needs.
  • The auditing process may help in the processing of data in the organization.

In conclusion, auditing is a vital process in any organization. Whether it’s a tax, internal or an external audit, the process ensures that organization and government are transparent and provide the best of the best.

If you have any queries regarding different types of auditing and its processes, get in touch with us.

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