An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon" It also attempts to ensure that the books of accounts are properly maintained by the concern as required by law. Auditing has become such a ubiquitous phenomenon in the corporate and the public sector that academics have started identifying an "Audit Society". Auditors perceive and recognize the propositions before them for examination, obtain evidence, evaluate the same and formulate an opinion on the basis of their judgement which is communicated through their auditing report.
Any subject matter may be audited. Audit is a safeguard measure since ancient times (Loeb & Shamoo, 1989).Audits provide third-party assurance to various stakeholders that the subject matter is free from material misstatement. The term is most frequently applied to audits of the financial information relating to a legal person. Other commonly audited areas include: secretarial and compliance, internal controls, quality management, project management, water management, and energy conservation.
As a result of an audit, stakeholders may effectively evaluate and improve the effectiveness of risk management, control, and the governance process over the subject matter.
The word "audit" derives from the Latin word ‘audire’ which means "to hear".
Audits performed by outside parties can be extremely helpful in removing any bias in reviewing the state of a company's financials. Financial audits seek to identify if there are any material misstatements in the financial statements. An unqualified, or clean, auditor's opinion provides financial statement users with confidence that the financials are both accurate and complete. External audits, therefore, allow stakeholders to make better, more informed decisions related to the company being audited.
Internal auditors are employed by the company or organization for whom they are performing an audit, and the resulting audit report is given directly to management and the board of directors. Consultant auditors, while not employed internally, use the standards of the company they are auditing as opposed to a separate set of standards. These types of auditors are used when an organization doesn’t have the in-house resources to audit certain parts of their own operations.
Financial audits are the most common form of audits for various reasons including the fact that businesses exist to make money and return profits and generate wealth for their shareholders. This means that investors and other stakeholders must know whether the businesses are being run properly so that their capital is safe and generating the stated returns. Moreover, financial audits are also the most common forms of audits since any discrepancies in the books of accounts reflects the mismanagement of the companies in addition to finance affecting almost all operational and strategic areas of the companies’ and their businesses.
Operational audits are similar to internal audits. An operational audit analyses your company’s goals, planning processes, procedures, and operation results. Generally, operational audits are conducted internally. However, an operational audit can be external. The goal of an operational audit is to fully evaluate your business’s operations and determine ways to improve them.
A compliance audit examines your business’s policies and procedures to see if they comply with internal or external standards. Compliance audits can help determine whether or not your business is compliant with paying workers’ compensation or shareholder distributions. And, they can help determine if your business is compliant with IRS regulations.
Information systems audits mostly impact software and IT companies. Business owners use information system audits to detect issues relating to software development, data processing, and computer systems. This type of audit ensures the system provides accurate information to users and makes sure unauthorized parties do not have access to private data. Also, IT and non-software businesses should regularly conduct mini cybersecurity audits to ensure their systems are secure from fraud and hackers.
The forensic audit is normally performed by a forensic accountant who has the skill in both accounting and investigation. Forensic Accounting is the type of engagement that undertaking the financial investigation in response to a particular subject matter, where the findings of the investigation normally are used as evidence in court or conflict resolution among the shareholders. The investigation is covering numbers of areas include fraud investigation, crime investigation, insurance claims as well as a dispute among shareholders. A forensic audit is also needed to have a proper plan, procedure, and report like other audit engagement.
Statutory audit is referring to an audit of financial statements for the specific type of entities required by law or local authority. The statutory audit might be the difference from financial statements auditing as the financial audit is referring to the audit of all types of entity’s financial statements including both meet or not meet the government’s requirement. The statutory audit is normally performed by external audit firms and the audit report will be issued by the auditor and submit to the government body by the entity.
Tax audit is a type of audit that performing by the government’s tax department or tax authority. A tax audit could be performed as the result of in-compliant found by a government agency or the schedule set by the government tax department. An entity needs not to invite or engage with the tax authority to come to perform a tax audit. They will come by themselves. Entity just needs to file its tax obligation properly and timely based on the tax law of the country.
A compliance audit is a type of audit that checks against internal policies and procedures of the entity as well as law and regulation where the entity operating in. Law and regulation here is referring to the government’s law where the business is operating. The entity may also assign its internal audit function to review whether the entity’s internal policies and procedures are complying and effectively follow.
A compliance audit is part of the system that use by the entity’s management to enforce the effectiveness of the implementation of the government’s law and regulation, and the entity’s internal policies and procedures.
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