Types of Audit

With the objective of simplifying study, Audit is usually classified under the following three heads:-

1) General classification of Audit

2) Classification of Audit according to nature of accounts

3) Classification of Audit according to practice

General Classification of Audit

General classification of Audit is classified in three types-
        • Private and Voluntary Audit
        • Statutory and Compulsory Audit
        • Goverment Audit

 Private or Voluntary Audit- 

Certain firms and organisations are not required to get their annual accounts audited compulsorily. These are sole-trade firms, partnership   firms and other commercial organisations. These are ex-empted from compulsory audit. However, such firms also feel the importance  of audit and therefore, get their accounts audited at periodical intervals. Such audit is known as Voluntary or Private Audit. In such type  of audit the scope of audit is not specified under any law but it fully depends upon an agreement between the auditor and the employer.

Statutory or Compulsory Audit-

When it is necessary to get the annual accounts audited under some law, the audit is called Statutory or Compulsory Audit. The   scope   of such audit is determined by law. This scope is not being reduced by any agreement between the auditor and the employer. The Companies Act, 1956, "Makes audit of annual accounts compulsory of every company which is registered under this Act." In addition to such companies audit is necessary for Public Trusts, Electricity and Gas Companies etc.

 Government Audit-

Central, States and other Government have to get the accounts audited of the departments, companies and corporations run by them. For this work an audit department functions separately. The Comptroller and Auditor General of India is the highest official of such department. He is appointed by the President of India. This department presents its audit reports to the Government which is placed in both the Houses of the Parliament. In the case of State Government the audit report is laid down on the tables of both the houses of Legislative Assemblies.

Classification of Audit According to the Nature of Accounts

It can be classified into two types:

    • Financial Audit
    • Cost Audit

Financial Audit-

When an auditor audits the accounts of a commercial organisation, it is called Financial Audit. Under such audit he examines and verifies books of original entries and the profit & loss account and balance sheet prepared by the organisation. In the ordinary course auditing means financial audit.

Cost Audit-

Audit of the cost accounts and records of the manufacturing organsiations is known as Cost Audit. Under such audit and extensive examination is done of the cost of production of the goods and the auditor examines information for the justification of such cost.

Classification of Audit According to Practice

The Practical Classification of Audit is started as below:-

  • Continuous Audit
  • Cash Audit
  • Complete Audit
  • Partial Audit
  • Periodical Audit
  • Interim Audit
  • Internal Audit
  • Standard Audit
  • Management Audit
  • Detailed Audit

Continuous Audit-

When an auditor or his staff audits the records of the organisation throughout the year or after a regular interval and conduct audit work, it is called Continuous Audit, It is also named as Running Audit.

Cash Audit-

When an auditor is asked to audit the cash transactions only of the organisation, it is called Cash Audit. Under such audit the auditor adopts routine checking only. He clarifies in his audit report that he has audited the cash transactions only.

Complete Audit-

Where the commercial organisation gets its account books audited extensively so that no transaction is left over, then such audit is named as Complete Audit.

Partial Audit-

Where the owner of the commercial organisation gets the audit of some part of the accounts and not the whole account books, then such audit is named as Partial Audit. Partial Audit is of two types:

  1. According to the period, for example - Audit of accounts for three to six months, and 
  1. According to the work where instead of all the account books only a few or specific account books audited.

Periodical Audit-

Such audit is also named as Final Audit, Balance Sheet Audit and Annual Audit. When at the end of the year the cash book is closed and final completion of accounts are prepared then audit work starts and it is over after the whole work.

Interim Audit- 

Such audit is commenced during any part of the year, i.e., when the company wants to declare interim dividend it adopts Interim Audit. It need not wait till the annual audit. However, interim audit also involves the complete examination and verification of the accounting and other records of the commercial organisation, from the beginning of the year till the date of the interim audit. Usually such an audit is conducted for a quarter of the year or for a six months period.

Internal Audit- 

In large commercial organisations the number transactions is quite large. The accounting records maintained by an employee are re-examined by a few trusted, experienced and honest persons. These persons conduct the audit themselves. Such examination of the account books is called Internal Audit. Internal Audit helps a lot in the conduct of final audit or balance sheet audit.

Standard Audit-

It is also called Sample Checking. In such type of audit, some transactions are picked up and a complete check and analysis of such transactions is conducted. In such audit the main concentration is on detailed checking and analysis of a selected number of items. But sample checking of the remaining items is also done. Which items should be selected for detailed checking or analysis and which ones for only sample checking, depends upon the effectiveness of the Internal Control System operating in the commercial enterprise. However, the decision is taken by the owner of the enterprise in this regard.

Management Audit-

Management audit means an investigation of a business from the highest level to downward level in the heirarchy of the organisation. The objective is mainly to ascertain the performance of the management and pin point weaknesses or irregularities which exist in various levels of management.

Detailed Audit-

Detailed Audit should not be taken as Complete Audit,because in Detailed Audit all the transactions are not examined. Only a few transactions are selected as a sample. These sample transactions may be selected on Random Sampling Basis. Audit of these sample transactions is done step by step right from the origin of the transaction till its final entry. Detailed audit is called Audit-in-Depth also. 

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