CLASSIFICATION OF AUDIT

CONTENTS

Introduction Classification of audit On the basis of organizational structure On the basis of specific objectives On the basis of Scope On the basis of Time

Introduction
An audit is an examination of accounting records by a qualified experienced and competent independent person The job of an auditor is to detect errors and frauds and irregularities in the accounting records The process of auditing depends upon the kind of audit required in particular circumstances There should be clear understanding about various classes of audit to decide what type of audit is suitable in particular situation

Classification of Audit
Organizational Structure basis
Private Audit
Sole proprietorship Partnership Non profit organization

Specific objectives basis

Cost audit Management audit Operational audit

Scope basis
Complete audit

Time Basis

Continuous audit Partial audit Detailed audit

Government Audit

Social audit Internal audit Propriety audit Tax audit External audit

Final audit

Statutory Audit Financial audit Balance Sheet audit

Interim audit

Classification of audit on the basis of organizational structure

i.

Private or voluntary audit

Audit not compulsory under law Nature and scope is determined by client and auditor Undertaken to avail several benefits, not to fulfill statutory requirements Audit of Sole proprietorship, partnership and non profit organization Voluntary audit Nature and scope is determined by clients and auditor

Classification of audit on the basis of organizational structure

ii.

Government audit
Examination of accounting records in government offices, departments and organizations through government auditor called government audit. Covers audit of all the expenditure and receipts of government organization Objective is to check that expenditure has been incurred as per budget estimates and there is no misuse of authorities.

iii.

Statutory audit
Audit which is conducted compulsory under any law Scope of audit are mentioned in law E.g. the banking companies ordinance 1962 applicable to audit of banking companies

Classification of audit on the basis of specific objectives

i.

Cost audit
To examine the cost record of manufacturing concerns in order to see to correctness of cost accounts Conducted to determine the cost of products and services

ii.

Management audit
Not compulsory Objective to remove weak points so that overall performance of management may improve. Examination and review of various policies and action of management Highlights inefficiency and suggests measures to remedy the deficiencies of management

Classification of audit on the basis of specific objectives

iii.

Operational audit
Conducted to improve profitability of an organization by examining policies and procedures Objective
To improve profitability of business unit To develop recommendations for further actions To develop recommendations for improving operations

iv.

Social audit
Conducted to protect interest of consumers, employees and all those who are affected by the decision of enterprise Objective is to improve the quality of product, reasonable prices, decrease in product cost, pollution control cleanliness etc

Classification of audit on the basis of specific objectives

v.

Propriety audit
correctness and reasonableness Income and expenditure of the concern is checked and examined Objective is to ensure that there is no wastage of funds by mistake or fraud

vi.

Tax audit
Objective is to assist tax authorities in making speedy and correct assessment of tax.

vii. Financial audit Conduced to ascertain whether balance sheet and profit and loss account give a true and fair view of affairs of the organization.

Classification of audit on the basis of scope

i.

Complete audit
Examines all accounting books and records for one trading period suitable for large and small scale business units Continues and final audits are complete audit

ii.

Partial audit or incomplete audit

Audit relates to a particular part of accounting records or a part of accounting period
Audit starts with the book of original entries and ends with balance sheet Transactions are examined with documentary evidence from beginning to end

iii. Detailed audit

Classification of audit on the basis of scope

iv.

Internal audit
Examination of accounting records by its employees called internal auditor(no qualification is specified), is appointed by management Conducted to review accounting records and to highlight weak areas Internal auditors work assists the external auditor in his work

v.

External audit
Audit conducted by outside auditor who gives true and fair value of financial statements Has no influences of management in performance of duties

Classification of audit on the basis of scope

vi.

Balance sheet audit

Concerned with the verification of values of various assets and liabilities from book of original entry and relevant documentary evidence Suitable for organizations which have effective system of internal control

Classification of audit on the basis of Time

i.

Continues audit
Running audit or detailed audit Auditor visit the business t regular or irregular intervals Engaged in examining the accounting records the whole year

ii.

Final audit
Commenced at the end of trading period when all the accounts have been closed Visit once

iii.

Interim audit
Accounting records are examined up to a particular date Purpose is to know interim result to take important decisions regarding price of product, profit or investment etc

QUESTIONS.