Types of Audits

October 9, 2015 by Ed Becker

 

In our last article we discussed the external audit of financial statements. Today we will delve deeper into other types of audits and why they are all useful and an integral part of business. Some types of audits are more geared towards corporate businesses that have stakeholders and legal requirements to abide by; others are useful for all companies whether they are large or small.

The following are specific types of audit that could be required or voluntary, according to the type and size of business.

• Internal

Internal audits may also be referred to as an operational audit. These are voluntary engagements that are performed by employees of the company to provide assurances of the effectiveness of the internal workings of the company.

• Public Sector

Many state owned companies or institutions are under legal obligation to have a public sector auditor review and examine their affairs. This includes the financial affairs, the efficiency and effectiveness of the company, and the economy of resources used. This allows transparency to the public.

• Tax

Tax audits are the most common type of audits. These assess the tax returns of a company to ensure accuracy of financial statements and tax liability. Some companies are required to have regular tax audits and some are done at random depending on geographical areas and governing laws.

• Forensic

Forensic audits are most often used when an investigative nature of accuracy is required. These could include investigations of fraud, insurance claims, partner disputes and professional negligence.

• Compliance

In order to comply with laws and regulations in some countries, companies must conduct audits in other areas. Some of these may include: verification of available reserves for shareholder distribution, assets and liabilities on time of liquidation and costing audits of manufacturers where price control is an issue.

• Environmental & Social

These audits are more for company reputation and good faith. They determine the social and environmental sustainability of the company and its economic and environmental footprint. Green companies who are committed to their environmental consciousness will undergo an environmental & Social audit to ensure the public knows they are honestly concerned about their footprint.

• Information System

Information systems audits could be performed internally or externally, to assess the controls that are relevant to the IT infrastructure. Some aspects that may be reviewed would be: internal controls and design of the system, security and privacy, efficiency and effectiveness, processing and data integrity and development standards.

• Value for Money

These types of audits are most often used by charities and public sector companies where profit is not a main objective. It is intended to show the effectiveness and efficiency of the use of company resources.

If everything in your company is in order, audits do not need to be a reason for stress and concern. Audits are just part of the checks and balances of doing business and are a necessary part of running a business.