Overview Types of Audits:

The audit is an art of systematic and independent review and investigation

on Financial Statements, Management Accounts, Management Reports,
Accounting Records, Operational Reports, Revenues Reports, and Expenses
Reports, etc. The result of reviewing and investigation will be reported to
shareholders and other key internal stakeholders of the entity.
Audit reports sometime submit to other stakeholders like government,
banks, creditors or public. The audit is classified into many different types
and level of assurance according to the objectives, scopes, purposes and the
procedures of how auditing is performed.
The execution of a financial statements auditing is normally in accordance
with International Standards on Auditing (ISA) as well as other local auditing
standards. There are many types of audit including financial audit,
operational audit, statutory audit, compliance audit and so on.
In this article, we will explain the 14 types of audits being performed in the
current audit industry or practices.
Here is the list of 14 Types of Audits and Level of Assurance:
#1: External Audit
The external audit is a type of audit service that audit firm provides
Assurance Service, Consultant Service, Tax Service, Legal Service, Financial
Advisory, and Risk Management Advisory. The best example of external
auditing is the services that providing by these big four audit firm including
KPMG, PWC, EY and Deloitte.
External auditors are normally referring to audit staffs who are working in
audit firms. These kinds of firms are sometimes called CPA firms as they
required by law to hold CPA qualification in order to be able to run an audit
firm and issue the audit reports.
This type of audit required to maintain the professional code of ethics and
strictly follow International Standards on Auditing and/or local standards as
required by local law.
The firms are working independently from auditing clients that they are
auditing and if the conflict of interest has occurred, proper procedures need
to take action to minimize the conflicts. The form should consider
withdrawing from audit engagement if the impairment could not minimize
to the acceptable level.
Noted: Some external audit firms are also offering internal audit services.
The popular services that offer by external audit firms are an audit of
financial statements, tax consultant, and advisory services.
#2: Internal Audit
Internal Auditing is independence and objectivity consulting service which
is design to add value to the business and improve the entity’s operation. It
provides a systematic and disciplined approach to evaluating and assessing
risks management, internal control, and corporate governance.
Scope of internal audit is generally determined by the audit committee, the
board of directors or directors that have equivalence authorization. And if
there is no audit committee and board of directors, internal audit normally
report to the owner of the company.
Internal audit activities are normally covered internal control reviewing,
operational reviewing, fraud investigation, compliant reviewing, and other
special tasks assigned from the audit committee or BOD.
#3: Forensic Audit
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.
The investigation is covering numbers of areas include fraud, crime,
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.

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Forensic audit also needs to follow ethical guideline like an audit of financial
statements. This kind of engagement is not so popular as an audit of financial
statements or statutory auditing.
#4: Statutory Audit
Statutory audit is referring to an audit of financial statements for the specific
type of entities that required by law or local authority. For example, all
banking sectors required their financial statements to be audited by
qualified audit firms approved by their central bank.
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.
However, statutory audit refers to only auditing of the entity’s financial
statements that required by local law. The statutory audit is normally
performed by external audit firms and the audit report will be issued by the
auditor and submit to government body by the entity. The best example of
the firm that offering statutory auditing are KPMG, PWC, EY, …. etc.
The common criteria set by law that required entities to have the auditing of
their financial statements by qualified audit firm are amount annual
turnover, the value of assets, and the number of staffs.
Some countries may require company in specific industries like bank,
mineral, and others based on their decision to have those company’s
financial statements audited.
Companies listed on the stock exchange are generally required and enforce
by stock exchange authority to have qualified audit form audited their
financial statements.
#5: Financial Audit
Financial audit refers to the audit of the entity’s financial statements by an
independence auditor where audit opinion will be provided on those
financial statements.
Financial audit normal perform by an external audit firm who hold CPA.
Financial audit normally performs annually and at the end of the accounting
period. This type of audit is also known as financial statements auditing.
But, sometimes as require management, bank, security exchange, regulation,
or else, the financial audit is also performing on a quarterly as well. Most of
the entity prepares its financial statements based on IFRS, and some entity’s
financial statements are prepared based on local GAAP.
For example, the entity register in the US, their financial statements are
prepared based on US GAAP. If the financial statements are prepared based
on IFRS, the financial audit needs to be audit against IFRS.
However, if the financial statements are prepared based on local GAAP, then
audit needs to be performed against those local GAAP. The audit standards
that use by the auditor to conduct financial audit need to adopt international
standards and requirement of local law.
Some country requires an audit firm to follow its audit standards while some
other countries have adopted the international standards and transform it
to be local.
#6: Tax Audit
Tax audit is a type of audit that performing by government tax department
or tax authority. 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. To minimize the penalty
as the result of the tax audit, the entity is recommended to follow all the
requirement set by tax law and for those areas that they are not sure, the
entity should engagement with tax consulting firm for advising.

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Advantages, Disadvantages

#7: Information System Audit or Information

Technology Audit (IT Audit)
An information system audit is sometimes called the IT audit. This type of
audit assesses and check the reliability of the security system, information
security structure, and integrity of the system.
Sometimes, financial auditing also requires to has IT auditing as now
technology is increasing and most of the client’s financial reports are
recording by complex accounting software. Audit approach also changed due
to the changing of management’s approach in recording and reporting their
entity’s financial information.
Normally, before relying on information system (software) that use for
producing financial statements, auditor required to have IT, audit team, to
test and review that information system first.
This kind of audit also offers and request separately from the financial audit.
As you can know, most of the big firms have this kind of services. They do
not only provide IT audit but also offering consultant on the information
system areas.
#8: Compliance Audit
A compliance audit is a type of audit that checks against internal policies and
procedures as well as law and regulation. Law and regulation here we mean
the government’s law where the business is operating.
For example, in the banking industry, there are many kinds of regulation
required bankers to follow and comply with. Most of the central banks
required commercial banks to set up the complaint review (assessment) or
compliance audit to make sure that they are complying those law and
regulation set.
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.
#9: Value For Money Audit
Value for money audit refers to audit activities that perform in assessing and
evaluating three main difference factors: Economy, Efficiency, and
Effectiveness.
Economy, auditor assess and evaluate whether the resources that entity
purchases are at the low cost with acceptable quality where efficiency audit,
auditor check whether resources that entity use have better conversion
ratio.
Effectiveness, by the way, look at the big picture of objective whether entity
using the resources meet it objective or not.
The auditor might review the entity’s purchasing system to assess and
evaluate whether it is helping the entity to purchase materials or services at
the low costs or not.
#10: Review Financial Statements
Review Financial Statements is a type of negative engagement where
auditors are engaged to review the financial statements of the entity. At the
end of the review, the audit is not going to express whether financial
statements are true and fair view and free from material.
But, the auditor will issue the opinion to say that there is nothing come to
their attention that financial statements are not prepared true and fair view
and free from material.
This kind of service is normally required when an entity borrows money
from the bank. And the banks, as part of their policy require the entity to
provide financial statements reviewed by the external auditor.

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#11: Agreed Upon Procedures (AUP)

The agreed-upon procedure is the type of negative engagement where
auditors perform their review on the procedures that agreed with the client.
This type of engagement is called limited assurance.
Even though the procedures are set by the client, but auditors will also need
to make sure that the firm has enough resources to perform the job and fee
are not low-balling.
Auditors will also need to make sure that there is no conflict of interest
between the audit team and the client management team. If the auditor
found that there is a conflict of interest, the safe guide needs to check and
introduce to reduce the conflict.
#12: Integrated Audit
Integrate audit is happen when there are two different areas of audit
requirements. For example, there is a financial audit along with social audit
or there are some areas need to be confirmed with the financial audit.
For example, the NGO requires their financial statements to be audited along
with technical areas that those NGO spending the money for.
For example, NGO is working on public health and most of the money spend
are related to public health. Besides the expenses reports that present the
expenses that NGO paid for and need to be audited by the financial auditor,
there is the number of technical reports like health reports which need to be
verified by technical auditors that have experienced in assessing health
report.
This is called an integrated audit. The integrated audit also happens when
the entity operates in many different countries and the financial statements
are an audit by different audit firms.
#13: Special Audit
The special audit is a type of audit assignment that normally done by the
internal auditor. This has happened when there is the problem/case
occurred in the organization like fraud, business case or other special cases.
For example, there is fraud occurred in the payroll department and this
concern raised to the audit committee or board of director or sometimes
there is the request from the CEO to have a special audit on these areas. The
special audit is a bit different from the forensic audit as special audit done by
the internal staff of the entity.
#14: Operational audit
Operational audit is types of audit services that the review is mainly focused
on the key processes, procedures, system, as well as internal control which
the main objective is to improve the productivity, as well as efficiency and
effectiveness of the operation.
Operation audit has also targeted the leak of key control and processes that
cause waste of resources and then recommend for improvement.
Operational audit is the part of the internal audit and their main aim is to add
value to the business their professional services. Systematic and highly
discipline is also the part that helps to make sure the operational audit adds
value to the organization. Written by Sinra