Types of Financial Audits

Types of Financial Audits

Financial audit can be broadly categorized into External audit, internal audit, Government audit, & Tax audit.

1.    External Audit

External audit is conducted by the commercial auditor and these auditors are appointed by the equity holder or shareholder. External audit is conducted as per the requirement of international auditing standards. External auditor issue a report over the accuracy of financial statement.

2.    Internal Audit

Internal audit is conducted by the internal auditor. Internal audit is appointed by the management. Internal audit is conducted to check compliance of financial rules/policies by finance department during the processing of financial transactions. Internal Auditor submits report to management.

3.    Government Audit

Audit of various public departments is conducted by the government audit department. Government auditor checks, whether or not, the funds have been utilized as per Government prescribed rules. Government auditor submits report to legislative body.

4.    Tax Audit

Audit tax is performed by the tax department. Tax audit is conducted to calculate the tax payable by the company. Companies may try to understate their income to save tax; therefore tax audit is conducted to assess actual income of companies.

Auditor Responsibilities

 Auditor Responsibilities

Auditor responsibilities include obtaining audit evidence, compliance with auditing standards, compliance with ethical guidelines and expressing an appropriate audit opinion. These responsibilities have been explained below;

1.    Obtain Audit Evidence

First responsibility of is to obtain audit evidence for forming an opinion. Audit opinion must be based on the audit evidence obtained by the auditor during the conduct of audit.

2.    Auditing Standard Compliance

Second responsibility of Auditor is to plan and conduct the audit in accordance with the guideline of international auditing standard and national standard (if any). Compliance with such standard would help auditor for obtaining required audit evidence for audit opinion.

3.    Ethical Guidelines Compliance

Third responsibility of Auditor is to comply with ethical guidelines for audit i.e. independence, integrity, professional behavior, competence etc.

4.    Expressing an Opinion

Fourth responsibility of Auditor is to express an opinion on the financial statement, whether or not, those financial statement present the factual position. Auditor is required to express appropriate opinion in the relevant circumstances.

Performance of Audit

Performance of Audit

The auditor obtains reasonable assurance that financial statement are free from material misstatement which may result from the fraud or error. Auditor is required to observe the ethical requirement during the course of audit.

1.    Compliance Technical Standard

Auditor can obtain reasonable assurance by complying with the technical standard issued by a recognized body. International auditing standard is an example of such technical standard.

2.    Compliance with Ethical Requirements

Auditor is also required to comply with the ethical requirement for objectively conduct of audit. Ethical guidelines have been issued to ensure independence and objectivity of audit.