Auditing is a detailed examination of the financial reports of an organization Or, Auditing can be defined as the accumulation and evaluation of pieces of evidence to determine the conformity between the financial statements and the authorized criteria.
There are three main types of audits:
- External audits: These audits are commonly performed by Certified Public Accounting (CPA) firms. The result of the external audits is an auditor’s opinion which is mentioned in an audit report. External audits include a review of financial statements additional to a company’s internal controls.
- Internal audits: These audits report over the company’s corporate and accounting processes.
- Internal Revenue Service (IRS) audits: It represents a review or examination of an individual’s accounts or organization’s and their financial information to confirm that information is reported correctly based on the tax laws and it also verifies the reported amount of tax is correct.
There are various types of an audit like operational audit, special audit, IT audit, forensic audit, etc. Some of the classifications of audits are explained:
1. Forensic Audit: The Forensic audit is performed by a forensic accountant. A forensic accountant has accounting and investigation skills. In the Forensic Audit, the financial investigation is undertaken in response to a particular matter, and the results of the investigation are meant to pieces of evidence in court.
2. Statutory Audit: The audit is for the specific type of entities that the law demands or sometimes by local authority also. Statutory audit is conducted by the external audit firms and the report is submitted to the government body by the auditor.
3. Financial Audit: It is performed by the independent auditor to audit the entity’s financial statements in which auditor opinion is important on the financial statements. It is conducted at the end of the accounting period but, sometimes as demand management, bank, security exchange, regulation, the financial audit is also conducted quarterly.
4. Tax Audit: Tax audit is performed by the government tax department. A tax audit could be performed as the in-compliant found by a government agency. The tax authority themselves comes to investigate, the entity does not interfere in between. The entity is instructed to follow all the rules set by a tax authority.
5. Information System Audit: An information system audit is also called an IT audit. It checks the reliability of the security system and information security system. Since technology is increasing, financial auditing also demands IT auditing. The client’s financial reports are recorded with the help of AI or the complex accounting software.
Nowadays, the approach of auditing has been also changed due to the ways of recording and reporting has changed.