Definition of Audit & Types of Audit
Meaning of Audit
An auditing is an evaluation of a person,organization,system,process,enterprise,project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management,quality management,and for energy conservation.
Definition of Auditing
According to the Institute of Chartered Accounting of India (ICAI). “Audit is the independent examination of any entity,Whether profit-oriented or not and irrespective of its size or legal form,When such an examination is conducted with a view to expressing an opinion thereon”.
In other words, Auditing is the process by which a competent independent person objectively obtains and evaluates evidence regarding assertions about an economic activity or event for the purpose of forming an opinion about and reporting on the degree to which the assertion conforms to an identical set of standards.
Types of Auditing
There are three types of audits, namely:
1. Financial Statement Audit: It deals with the assessment and verification of the financial statements of an organization. The aim of this auditing is to ensure that the financial documents are not mishandled and are fair. They must also comply with the accounting principles established by that particular organization. It primarily deals with Balance Sheet and Profit and Loss Accounts.
Financial audit evaluates the revenues and expenses. It checks that the reporting or the financial documents are in accord with the concerned law, policies and procedures.
2. Compliance Audit: This audit focuses on reviving the level of compliant with policies framed by the organization or external regulatory requirements. It basically verifies the compliance of rules including legislation, regulations, contractual and regulatory requirements. It tries to determine that whether there is any violation of concerned laws and regulations that are effecting the organization. Procedures and rules established by the company plays a significant role in maintaining the smooth functioning of the system, and therefore this audit plays an important rule to find out whether these rules are implemented properly or not.
3. Operational Audit: This type of audit is performed to verify that the resources are being use up in the organization in the best possible manner to fulfill the aim of the organization. These are also sometimes known as performance audits. This type of audit takes ingredients from financial as well as compliance audit. In addition it also aims to identify the operations which have chances for further improvement. It is done in order to improve operational efficiently. It verifies that the activities being performed in the company are in the way of meeting predefined management objectives.
4. Information System Audit: This audit focuses on the organization Information system and its related operations. This is generally done with other types of audits like financial, etc. It evaluated and examines the data from IT systems and evaluates their reliability, especially the ones effecting the financial statements of the organization.
It is known by various names like Information System Audit, technology audit, computer audit, etc. IT looks into the technical operation, data center operation and other application controls.