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CLASSIFICATION

OF AUDITS

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Classification of Audits

Why

Who

When How

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Why?

Statutory Audit

Carried out because it is required by law

Voluntary Audit Carried out not to meet a legal requirement

but to serve a particular business purpose.

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Voluntary Audits

Fraud investigations

Insurance claim disputes

Cost Audit Systems Audit

Management Audit

Operational Audit Marketing Audit

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Who?

External Audit:

Carried out by an independent outside expertwho is legally authorized to audit.

Internal Audit

Carried out by a member of finance ormanagement team, on a regular basis, to

ensure the accuracy of accounts beforeexternal auditor comes in.

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Difference between

Internal & External Auditors Extent of independence

Interests served

Scope of work undertakenAcceptability of report

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Reliance of EA on IA

Degree of independence enjoyed by IA

Strength & quality of IA staff

Quality of tests made by IAAvailable evidence of work done

Management action on IA reports

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When?

Final Audit:

Carried out after the end of financial period.

Continuous Audit Carried out throughout the year

Interim Audit

Covers less than financial year and is carriesout during the year

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Advantages of Final Audit

All records available:

Audit can be done in depth.

Faster work

No possibility of change of figures afteraudit.

Relatively less expensive

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Disadvantages of Final Audit

May be too late to detect errors or frauds.

Audit report may be delayed.

Not suitable for companies required topublish quarterly accounts.

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Advantages of Continuous Audit

More detailed checking possible.

Errors and frauds detected quickly.

Positive psychological effect.Accounting work remains up to date.

Audit report available quickly at year end.

Publishing quarterly, half yearly accountspossible.

Less staffing problem for auditor.

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Disadvantages of

Continuous Audits Figures may be altered after audit.

Inconvenience to accounting staff due tofrequent visits by auditor.

Possibility of lapse; something left out.

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Safeguards against

Disadvantages No change in figures allowed; pass

another entry.

Records by auditors to ensure continuity.

More important ledgers may be auditednearer to year end.

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Advantages of

Interim Audits Helpful for publishing quarterly accounts.

Reduce year end work.

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How?

Balance Sheet Audit

Auditor starts from Balance Sheet and worksback to original entry and supporting records.

Vouching Audit

Auditor starts from original entry andsupporting records and works up through

ledger, to trial balance and right up tofinancial statements.

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Thank you

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