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Types of Audit

Financial Statements Audit - A financial statement audit is the examination of


an entity's financial statements and accompanying disclosures by an independent
auditor. The result of this examination is a report by the auditor, attesting to the
fairness of presentation of the financial statements and related disclosures.

Operational Audit - An operational audit involves a systematic review of an


organizations activities, or a part of them, with the objective of pointing out
improvements that will increase its efficiency and effectiveness.

Compliance Audit - Testing and reporting on whether an organization has


complied with the requirements of various laws, regulations and agreements

Investigative Audits - are performed when appropriate. These audits focus on


alleged violations of federal and state laws and of university policies and
regulations. This may result in prosecution or disciplinary action. Internal theft,
misuse of university assets, and conflicts of interest are examples of investigative
audits.

Information Systems (IS) Audits - address the internal control environment of


automated information processing systems and how these systems are used. IS
audits typically evaluate system input, output and processing controls, backup and
recovery plans, and system security, as well as computer facility reviews.

Construction audit - This is an analysis of the costs incurred for a specific


construction project. 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. The intent is to ensure that the costs incurred for
a project were reasonable.

Tax audit - This is an analysis of the tax returns submitted by an individual or


business entity, to see if the tax information and any resulting income tax payment
is valid. These audits are usually targeted at returns that result in excessively low
tax payments, to see if an additional assessment can be made.

Internal & External auditing


External Auditing

External Audit is an periodic examination of the books of account and records


of an entity carried out by an independent third party (the auditor), to ensure that
they have been properly maintained, are accurate and comply with established
concepts, principles, accounting standards, legal requirements and give a true and
fair view of the financial state of the entity.
ASPECTS OF EXTERNAL AUDIT:

Statutory audit

It has always been the traditional role of an external auditor. It covers


all external audit activities, to ensure that the entity complies with the
appropriate fiscal requirements, accounting standards, and other
legislation governing the financial records of the entity.

Management of audit activities

Management of an audit team or audit department at senior,


supervisory or management level is likely to reinforce the quality and
level of experience in other areas of external audit.

Consultancy

The recent growth of consultancy work in audit firms has been an


important development, and there is usually an accounting
connotation to this work. Although auditors sometimes undertake such
work, there are many firms in which specialist consultancy
departments (or even separate consultancy firms) have been set up.

Objectives of external auditing

To identify and assess the risks of material misstatement of financial


statements due to fraud.
To obtain sufficient appropriate audit evidence regarding the assessed risks of
material misstatement due to fraud, through designing and implementing
appropriate responses.
To respond appropriately to fraud or suspected fraud identified during the
audit.

Relationship between External and Internal audit

During the course of their planning, the external auditors should perform a
preliminary assessment of the internal audit function, when it appears that certain
internal audit work is relevant to their external audit. External auditors may make
use of the work of internal audit in forming their opinion. During the course of their
work they will want to measure the effectiveness of internal audit.
Internal Auditing
Internal audit is an independent, objective assurance and consulting activity
designed to add value and improve the organizations operations. It helps an
organization accomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk management control
and governance processes.

Tasks of internal audit

To examine the risks that the organization faces.


To review the adequacy of the controls in place to protect it from those risks
To verify that the controls are working as intended
To add value and improve the organizations operations