There are four main types of Audit. These are stated in the following:
· Financial Audit
· Quality Audit
· Performance Audit
· Compliance Audit
Audits of financial statements or accounts can be named as financial audit. This type of audit focuses on the accuracy of financial reports or accounting system pertaining to financial conditions and operating performance. These audits appropriately emphasize auditor's concern for financial measures. They are most often associated with the external audit function; since certified public accountants (CPAs) are perceived to be independent witnesses whose primary function is to provide the public with assurance that entities’ financial statements are fairly presented.
When forming a conclusion about a financial balance, five key representations of the auditee are relevant to audit planning:
· The auditee is a regulated entity, either by incorporation or as a result of securities registration for trading purposes and must file audited financial statements.
· The auditee is a multi-national company and need a consistent, global audit methodology for its financial statements.
· The auditee is in the process of exploring the feasibility of changing audit firms.
· The auditee wants its current audit firm to concentrate on providing non-audit services to its firm and the auditee needs to engage a new auditor.
· The auditee is concerned that its current auditor does not sufficiently understand its company and industry to perform an effective audit.
An audit of financial statements usually follows a logical sequence of major steps or phases :
· Understanding the client
· Understanding the internal control structure
· Test of transactions
· Direct test of completion and review
After this we will deal with quality audit.
The second type of audit is Quality Audit. In this type audit, the auditor mainly concentrates on an audit by a certification body. The auditor will audit the company if the company asks them to certify a standard such as ISO 9001/TickIT.
Another kind of audit is that done by a customer. They may want to satisfy themselves that their company is capable of fulfilling a contract. Such an audit is often similar to that described here. Yet another kind is an internal audit. This is done by the company’s people, to check the Quality System is working or not.
The company needs to be able to show how their procedures fulfill the requirements. Depending on the type of audit, these may be the requirements of a published standard, of a contract or of the company’s own Quality System. The company also needs to have the records that show compliance in practice. The process of a quality audit is shown in the following.
The auditors want the company’s Quality System that has been in use for a certain period of time. Typically, this has to be at least 3 to 6 months. The company needs these records to show that the system is being used and is effective. Ideally, the auditors check some projects that have gone through the whole system from start to finish. If the company has only been operating it for a few months, this will not be possible - some of the projects now in progress will have started under previous systems. But the company may still be able to put up a good enough case to satisfy the auditors.
After the above happenings, the auditors need to be satisfied that company’s documented procedures comply with the standard, contract etc. Document requirements are less stringent than they used to be. Auditors do not want a lot of written procedures. Especially, they do not want them to exist on paper only, with no relation to reality.
The purpose of the audit visit is to check that the company is following the procedures that they are claiming that those are being done in their day-to-day work. The auditors interview a cross-section of staff. Interviews generally take place where the work is done, so the auditors can see it happening. They will also call for documents and records.
During their work, the auditors will note any discrepancy they find as non-compliance. If they find a major non-compliance that would result with failure in the audit of the company, they will tell the company at once and ask whether they want them to go on with it. The auditors will be keen to see that the company has an effective system of internal audits and that the company corrects any non-compliance. This is important, because the auditors themselves only review a small sample of the company’s work.
At the end of the visit, the auditors usually hold a closing meeting. At this, they present a preliminary report of their findings. After the visit, the auditors write up their report and send it to the company. The most important part will be the Audit Findings, a classified list of non-compliances. If an essential part of the company’s quality system is missing or not implemented, this will be a major non-compliance and will result in failure. Other non-compliances will be classed as minor.
To complete the process, the company has to correct the minor non-compliances. When the company has satisfied the auditors that the company has done so, the company gets the certificate.
Performance audit refers to an examination of a program, function, operation or the management systems and procedures of a governmental or non-profit entity to assess whether the entity is achieving economy, efficiency and effectiveness in the employment of available resources. The examination is objective and systematic, generally using structured and professionally adopted methodologies. Results and findings are stated in terms of yardsticks derived from the entity’s mission, vision, values or goals, or metrics based on these.
According to another source, performance audit is an audit performed on an asset manager by an outside accounting firm to verify that the performance figures shown to the public on marketing materials represent the true aggregate results. The CFA Institute which is the global, not-for-profit association of investment professionals that awards the CFA and CIPM designations, has established performance presentation guidelines, called global investment performance standards (GIPS), that must be maintained by asset managers.
Many national governments support professional or advisory bodies that publish standards and guides for conducting performance audits. In the
, the standard for government performance audits is the Generally Accepted Government Auditing Standards (GAGAS), maintained by the federal Government Accountability Office (GAO). These are often referred to as the "yellow book". United States
Performance audits are often conducted by Internal Auditors who are employees of the entity being audited. However, some national governments require agencies, departments and branches to periodically retain outside auditors to conduct them. All auditors who follow GAGAS standards are required to maintain independence, supervision, continuing professional education, and conduct the audit using a specific process designed to increase the quality of the audit and reduce the politicization of audit work.
As a result, performance auditing provides one source of information to assist management in its evaluation. Auditors require objective measures to conduct performance audits. Objectives need to be well defined in terms of measurable goals which can be compared to actual results. Similarly, efficiency is defined in terms of operating standards against which to compare actual performance. Effectiveness refers to the accomplishment of objectives. Efficiency refers to the resources consumed in achieving those objectives
The objective of this audit is to determine whether, and to what degree, an organization conforms certain specific requirements of policy, procedures, standards, or laws and governmental regulations. Control and compliance audits review the extent to which agencies are complying with legislation, and the maintenance of appropriate control over core financial and management processes.
To perform a compliance audit, the auditor must know precisely what policies, procedures, standards, etc. are rquired. Such requirements almost always are documented, as are the activities they govern.
Usually, compliance audits require relatively little initial survey work or review of internal controls, except to outline precisely what requirements are being audited.
Federal, state, county, and city governments have many laws, ordinances, and ergulations to govern the activities of organizations. These governmental requirements affect almost every aspect of an organization's operations.
 PWC, “Financial Statement Audit”, http://www.pwc.com/extweb/service.nsf/docid/8CE7B4C3FC2C3CDB8525701300586120
 Richard Stonehouse, “Quality Audit”, http://www.rstonehouse.co.uk/audit.html
 Stonehouse, Ibid.
 Wikipedia, “Performance Audit”, http://en.wikipedia.org/wiki/Performance_audit
 CFA Institute, “About Us”, http://www.cfainstitute.org/aboutus/index.html
 Investopedia, “Performance Audit”, http://www.investopedia.com/terms/p/performanceaudit.asp
 GAO, “Government Auditing Standards (The Yellow Book)”, http://www.gao.gov/govaud/ybk01.htm
 Wikipedia, Ibid.
 VAGO, “Control and Compliance Audit Reports”, http://www.audit.vic.gov.au/reports_comp/compliance_audit_reports.html