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Chapter 3 :Types of Audit

S.Y. B.B.A

Academic Year : 2010-11

Trimester : VI



Classification of AuditsStatutory and Non Statutory Audits

• Statutory audits cover :a) Companiesb) Banking companiesc) Electricity Supply companiesd) Co operative societies

e) Public and Charitable Trustsf) Corporationsg) Societies



Classification of Audits

Non statutory Audits Cover :1) Proprietory concerns2) Partnership firms

3) Unregistered clubs and societies, etc.

Internal audit & external audits :

1) Internal audit – by own staff 2) External Audit – performed by duly

qualified professional accountants



Classification of Audits• Primary distinction between internal and

external auditor• Responsibility – Internal auditor to management

and external auditor to owners of the concern• Scope of Work – Internal auditor will define on

basis of business activity, external auditor willdefine on the basis of the information requiredto express opinion

• Approach – Internal auditor has to ensure thatthe accounting system is efficient as well asinternal controls to ensure reliability of financialrecords. External auditor does not have anylimitation, there is no fear or favour



Classification of Audits

Interim, Final and Continuous audits :1) Interim audit –during the year for a

particular period of the year to avoid

too much in the end2) Final Audit – after the end of thefinancial year to audit completeaccounts

3) Continuous Audit – Continuous andseveral visits ( similar to internalaudit)



Kinds of AuditThese audits have specific purpose and may or may not bestatutory

1. Cost Audit – examine cost records, weaknesses in system, obligatory forsome

2. Tax Audit – u/s 44AB of I.T. Act

3. Management Audit – comprehensive and constructive examination of company’s organisational structure

4. Social Audit – special responsibility audit towards public, staff, government,etc

5. Balance Sheet Audit – commences from balance sheet and goes back to thebooks of accounts

6. Systems based Audit – evaluation of accounting system to ascertain reliability– proper system then minor checking, if not then detailed checking

7. Energy Audit – whether right amount of energy is used by the enterprise,done by technically qualified persons

8. Secretarial Audit – for Compliance with provisions of various Corporate Lawsin terms of legality as well as in terms of timeliness. (replaced by compliancecertificate by Company Secretary)



Continuous Audit

Advantages :

1) Quick preparation of final accounts2) Early dividends to shareholders3) Up to date accounts for

banks/investors4) Check on employees

5) Prevents Errors and Frauds6) Familiarity with clients business7) Thorough audit8) Utilisation of Audit Staff



Continuous Audit

Disadvantages :1) Expensive2) Audit in instalments3) Errors and frauds in books

already checked4) Disrupts accounts work5) Undue Reliance on Auditors



Final/Periodic/Annual audit

Advantages :1) Inexpensive2) Audit at a stretch3) Less errors and Frauds4) Does not Disrupt Accounts Work



Final/Periodic/Annual audit

Disadvantages :1) Delay in Final accounts2) Late dividends

3) Stale accounts forbankers/investors

4) No moral check on employees

5) No familiarity with Clients business6) Sample Check7) Uneven Work load for Audit Staff



Inherent Limitations of Auditing

1) An auditor cannot check each and everytransaction

2) Audit evidence is not conclusive in nature3) An auditor cannot be expected to discover

deeply laid frauds4) Audit cannot assure future profitability and

future prospects5) Auditor has to rely upon experts6) Auditor is supposed to be but may not beindependent7) Financial statements though audited have

their inherent limitations

ch 3 - types of audit_sy

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