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INTRODUCTION

What is Auditing?
Auditing is defined as a systematic and independent examination of data, statements, records, operations and performance (financial or otherwise) of an enterprise for a stated purpose [From general guidelines on Internal Auditing issued by ICAI] AUDIT is an independent examination of financial information of an 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. Audits can be classified into many types.

Some of them are-

Management audit Environmental audit Energy audit Cost audit Forensic audit Financial audit Operational audit Continuous audit Final audit Interim audit Concurrent audit Inventory audit Balance sheet audit Information technology audit Efficiency audit Account payable audit Propriety audit Social audit

from top to bottom. system of purchasing raw materials. The Methods Usually. The management audit would concern itself with the whole field of activities of the concern. changes in capital budgeting system. The handling is very sensitive and has far-reaching consequences. Responsibilities The auditor will not have to decide whether the management is making the right strategic and operative decisions but rather .  It aims at improving the efficiency and effectiveness of the organization by evaluating managerial decisions. from top. organizing directing and controlling and the adequacy of managements decisions and actions in moving towards its stated objectives. great processes of change are the trigger for Management Audits. etc. whether management has always to it and is using the relevant information and techniques necessary to evaluate rationality the various alternatives that exist.He may also help the management in its search for improved methods for better and mopre effetive operations such as search for techniques of sales forcasting. as well as for the entire company . Features The following features of management audit are clear from the analysis of the above : Management audit is a comprehensive and critical review of managerial performance against external standards. as always where management control is concerned. for the individual. changes in organization structure. starting. because we are primarily concerned with whether the general management is functioning smoothly and satisfactorily. MANAGEMENT AUDIT Management Audit is an audit of the management.  Operational areas which have or may have problems as identified to locate waste and deficiencies to ensure optimum utilization plus human and physical resources. Management auditor may suggest better system of quality and inventory controls and format of the performance appraisal to improve the efficiency of the organization. the management functions of planning . Management audits are concerned with appraising management accomplishment of organizational objectives .

via either    The annual report and accounts package A stand alone Corporate Environmental Performance Report A site centered environmental statement.so you get to save money where it counts the most. . When used as a “baseline” for tracking yearly progress against targets. ENVIRONMENTAL AUDIT Environmental audit is a term commonly used to describe the disclosure by an entity of environmentally sealed verified (audited) or not regarding environmental risks. staff news letter . e. internet site) Environmental audits are becoming increasingly common in certain industries. video cd room. to those who have an interest in such information as an aid to enabling enriching their relationship. Audit can be performed by external or internal experts (sometimes including internal auditors).g. targets. policies. documented. periodic and objective process in assessing an organization's activities and services in relation to:  Assessing compliance with relevant statutory and internal requirements  Facilitating management control of environmental practices  Promoting good environmental management  Maintaining credibility with the public  Raising staff awareness and enforcing commitment to departmental environmental policy  Exploring improvement opportunities  Establishing the performance baseline for developing an Environmental Management System (EMS). you have to know first which areas in your establishment unnecessarily consume too much energy. making them more knowledgeable about proper practices that will make them more productive. an energy audit becomes the best first step towards saving money in the production plant. An energy audit in effect gauges the energy efficiency of your plant against “best practices”.  ENERGY AUDIT An energy audit is a preliminary activity towards instituting energy efficiency programs in an establishment. It consists of activities that seek to identify conservation opportunities preliminary to the development of an energy savings program. An energy audit identifies where energy is being consumed and assesses energy saving opportunities . costs. doing an energy audit increases awareness of energy issues among plant personnel. strategies. or Some other medium(e.g. In the factory. impacts. Environmental auditing is a systematic. liabilities or performance. which is the most costeffective to improve. Often the work is performed by a multi disciplinary team and is performed at the request of management and are for internal use. The Role of Energy Audit: To institute the correct energy efficiency programs.

and if the suspicions are proven. and independent of normal financial audits carried out under the sections of the acts. Types of Cost Audits: Persons of varied interests (shareholders) may require cost audit reports of a company. The cost audit is an addition to. Accordingly the different types of cost may be as follows:      Cost audit on behalf on management Cost audit on behalf of customers Cost audit on behalf of government Cost audit by trade associations Statutory cost audit. COST AUDIT It is an audit process of verifying cost of manufacture or production of any articles on the basis of accounts an=s regards utilization of material or labour or other items of costs . Objectivity: The objective in case of reactive forensic audit is to investigate cases of suspected fraud so as to prove or disprove the suspicions. He has to perform all the duties as are expected from auditors in general . to identify the persons involved. The main duties and responsibilities of a cost auditor are as follows: He is liable to the company if he does not perform his duties properly.  He is responsible to answer any query required by the central government on the report submitted by him. .  He is liable to third parties who might have been mislead by his misleading reports.  FORENSIC AUDIT: Definition Forensic auditing could be defined as the application of auditing skills to situations that have legal consequences. maintain by the company.  He should not disclose any confidential information known to him during his tenure of his work. Responsibilities of the auditor: The duties of a cost auditor has not been mentioned completely in the companies act .  He should maintain all his documents as an evidence of his performance of his duties. support the findings by evidence and to present the evidence in an acceptable format in any subsequent disciplinary or criminal proceedings.

Qualifications: Skills for Forensic Audit  Knowledge of entity’s business and legal environment. Operational audits are usually a deeper review of company operations than a financial audit. These companies provide tax support and audit management controls to companies they represent Structure Financial audits are done before the end of the fourth quarter of a business's fiscal year to create a financial snapshot of how a business operated in that fiscal year. the nature of the business and the way the business is administered. Four major companies that do the majority of financial audits in the United States: KPMG.  Awareness of computer assisted audit procedures. A financial audit or financial profile of the company will be released by the auditor or forensic accountant after completion of the analysis. It is not uncommon for a business to employee an internal auditor to monitor financial controls of a company in addition to hiring outside auditors . the auditing firms also test new internal control systems. transaction records and ways to eliminate overhead. It can be done at any level. Audits are intended to show whether a company's financial documentation matches its financial claims. Benefits from operational audits include objective opinions. Significance People often read through a company's financial audit before deciding whether or not to become shareholders or investors in the company.  Innovative approach and skeptic of routine audit practices. These audits test production operations for efficiency and effectiveness. Auditors weigh industry regulations. Deloitte. These financial analyses are usually done by certified public accounting firms and forensic accountants who provide an objective view of the true financial integrity of a company. Pricewaterhouse Coopers and Ernest & Young. which is conducted in an after-the-fact audit process. from local to governmental. Using staff accountants for an internal operational audit allows companies to have an . Audits look at the accuracy of internal controls. improved workflow or cost allocation processes and quicker turnaround times. In addition to testing the accuracy of internal controls. Audits may be conducted by internal employees or external auditors with business experience relating to the company's operational procedures. Staff accountants or accountants from public accounting firms usually conduct operational audits.  Operational Audit An operational audit tests a company’s internal systems and procedures used to produce its goods and services sold to consumers.  Financial Audit A financial audit is the critical analysis of a business's financial records and documentations.

normally audit work would begin in April 2003 and continue thereafter. Department managers may have a tendency to fudge their audit figures since they often receive compensation bonuses or pay increases from improved operations. But in case of a continuous audit the work would begin in April 2002 itself and continue at regular intervals till it is complete. Continuous audit means an audit at regular intervals throughout the accounting year. the audit work begins after the accounting year itself.  CONTINUOUS AUDIT Continuous Audit is defined by R. At each visit. the work would be taken up from where it was left in the earlier visit. Public accounting firms sometimes are used for operational audits to inform outside stakeholders on the operational strength of a company’s operations. Final or periodic Audit means an audit taken up after the end of the accounting year. however. does not mean the audit work goes on for 365 days of the year. For example.objective opinion on how well the company is using their business resources. say. accounting and auditing work is done almost side by side.C WILLIAMS as one where the auditor is constantly or at regular intervals engaged in checking the accounts during the period.  FINAL OR PERIODIC OR ANNUAL AUDIT Spicer and Pegler define it as “an audit which is not commenced until after the end of the financial year and then carried on until completed. The audit work begins only after the accounting year is over. Thus in continuous audit. annual or periodic Audits ADVANTAGES OF ANNUAL AUDIT  Inexpensive  Less errors and frauds  Does not disrupt accounts work . every two or three months during the year. if the accounting year begins on 1st April 2002 and ends on 31st March 2003. ADVANTAGES OF CONTINUOUS AUDIT  Quick preparation of final account  Early dividend to shareholders  Check on employees DISADVANTAGES OF CONTINUOUS AUDIT  Expensive  Audit in installments  Disrupts accounts work. Objective audit opinions may lead companies to increase their production cost controls. Generally. Generally majority of audits are in the nature of Final. Continuous Audit. The auditor may make periodical visits.

returns or purchases. Inventory is tangible and can be counted.  INVENTORY AUDIT In inventory audit is a very straight-forward task. and must comply with all policies and procedures that are part of the final audit process. You must separate company-owned inventory from third-party-owned inventory. With inventory. Interim auditing standards are the same as those used to conduct any type of accounting or inventory check. A combination of the payables. We ensure that the transaction or decisions are within the policy parameters laid down. and that they are within the delegated authority and in compliance with the terms and conditions for exercise of the delegated authority. they do not violate the instructions or policy prescriptions. . improperly documented damaged and disposed of inventory or theft. An interim audit does not usually yield any formal reports from the external auditors.DISADVANTAGES OF ANNUAL AUDIT  Delay in final accounts  Late dividends to shareholders  No moral check on employees  INTERIM AUDIT INTERIM AUDIT is an audit conducted during the fiscal year usually as a means of minimizing the work and time involved in concluding the audit after the fiscal year. which is contemporaneous with the occurrence of transactions or is carried out as near thereto as possible. improper receiving and shipping controls. Like any type of auditing task. you can reconcile these figures with your accounting records.  CONCURRENT AUDIT The concept of concurrent audit has been introduced to reduce the time gap between occurrences of transaction and is overview or checking. A corporation might have an interim audit covering the first nine months of the fiscal year so that at the end of the fiscal year most of the auditing will focus on the last three months of the fiscal year thus allowing for a comprehensive audit and early completion of the audit reports. Once this process is complete. The concurrent audit serves the purpose of effective control as it is normally conducted by external agencies like chartered accountants firms. The main focus while conducting concurrent audit it to ensure that transactions are not dealt with in routine but in adherence with the systems and procedures laid down. an interim audit will involve close examination of financial records. This is necessary since the data collected and analyzed during the interim auditing has a direct effect on the outcome of that end-of-year audit. Concurrent audit is an examination. you physically count it. Misstated inventory figures are usually a result of incomplete inventory records. receivables and inventory audit will usually locate any fraud.

its goodwill or trained manpower. can be easily misstated in either direction. These audits usually focus heavily on the cash. safeguard assets. The management is interested in knowing whether the use of tangible resources (cash. Land. The resources may be tangible—production capacity.  The concern has its own internal audit department and hence the statutory auditor need not duplicate his work. however. or intangible e. or whether intangible resources like goodwill are lost (due to bad management) or enhanced (by good management). etc. or balance sheet reconciliation audit.g. banks etc in the following circumstances The internal control system is very strong and the system is capable of detecting errors and frauds.) has been optional. the management is professional and accounts are computerized. Accounts payable and receivables. IT Auditor must know the characteristics of users of the information system and the decision making environment in the organization while evaluating the effectiveness of any system. Inventory can easily be misstated either by mistake or on purpose. allows organizational goals to be achieved effectively. buildings. A detailed vouch-and-post audit is not possible if the final accounts are to be ready in time. intangible assets and long term investments are very difficult to misrepresent. is an audit of the accounts on the balance sheet.  INFORMATION TECHNOLOGY AUDIT IT Audit is the process of collecting and evaluating evidence to determine whether a computer system has been designed to maintain data integrity. Data integrity relates to the accuracy and completeness of information as well as to its validity in accordance with the norms.  The accounts staff is highly qualified. The management is interested in ascertaining efficiency and economy with which they have been managed and used. This audit is not conducted in all cases. The resources of an enterprise are under the control of different operational departments. cash. Such audits are conducted in case of very large organizations. accounts payable. BALANCE SHEET AUDIT A balance sheet audit. The auditor should check whether proper operating standards in monetary and/or quantitative terms have been established for measuring economical and efficient use of resources. and uses resources efficiently. machinery etc.  The volume of transaction is so large that an in-depth checking is not possible. . accounts receivable and inventory.  EFFICIENCY AUDIT Efficiency Audit means the “review of utilization of resources”. An effective information system leads the organization to achieve its objectives and an efficient information system uses minimum resources in achieving the required objectives.

It is an instrument of social accountability for an organization. One way that many criminals steal from their employers is to pay a vendor for a product or service that was not provided. Social Audit is a tool with which government departments can plan. When over-payments are discovered. The vendor then splits the proceeds with the employee. and standards of conduct. government regulations and professional codes”. In other words. paid more than once for the same item or paid for a non-existent product or service.  PROPRIETY AUDIT Propriety Audit stands for verification of transactions on the tests of public interest. requirements of law. companies can try to recover the lost proceeds. and particularly as applied to professional performance. Social Audit may be defined as an in‐depth scrutiny and analysis of the working of any public utility vis‐à‐vis its social relevance. Civil society organizations are also undertaking ʺSocial Auditsʺ to monitor and verify the social performance claims of the organizations and institutions. Verification of randomly selected payable accounts is essential to maintain proper controls. Instead of too much dependence on documents. Thus propriety audit is concerned with scrutiny of executive actions and decisions affecting the performance and financial position of the company with special regard to public interest and commonly accepted customs. Faced with these vociferous demands. The term propriety is defined as “that which meets the tests of public interest. the executive and the legislature are looking for new ways to evaluate their performance. . ACCOUNTS PAYABLE AUDIT An accounts payable audit is designed to determine if a company has over paid. public interest and prevention of wasteful expenditure. A random audit of the accounts payable followed by an inventory audit will usually deter this kind of activity. it shifts the emphasis to the substance of the transactions and looks into appropriateness thereof on a consideration of financial prudence. commonly accepted customs or standards of conduct.  SOCIAL AUDIT Governments are facing an ever‐growing demand to be more accountable and socially responsible and the people are becoming more assertive about their rights to be informed and to influence governmentsʹ decision‐making processes. vouchers and evidences. commonly accepted customs and standards of conduct. manage and measure non‐financial activities and monitor both internal and external consequences of the department/organization’s social and commercial operations.

isohelpline.BIBLIOGRAPHY  http://daf.edu/offices/univ_svcs/internalauditing/audits.html  http://guide.csulb.com/content/types-audit  FYBAF SEM-II AUDITING AINAPURE PRESENTED BYPOOJA JAIN-14 .

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