CLASSIFICATION

OF AUDITS

Classification of Audits

Why
Who
When
How

Why?

Statutory Audit

Carried out because it is required by law

Voluntary Audit

Carried out not to meet a legal requirement

but to serve a particular business purpose.

Voluntary Audits

Fraud investigations
Insurance claim disputes
Cost Audit
Systems Audit
Management Audit
Operational Audit
Marketing Audit
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Who?

External Audit:

Carried out by an independent outside expert

who is legally authorized to audit.

Internal Audit

Carried out by a member of finance or

management team, on a regular basis, to
ensure the accuracy of accounts before
external auditor comes in.

Difference between
Internal & External Auditors

Extent of independence
Interests served
Scope of work undertaken
Acceptability of report

Reliance of EA on IA

Degree of independence enjoyed by IA

Strength & quality of IA staff
Quality of tests made by IA
Available evidence of work done
Management action on IA reports

When?

Final Audit:

Continuous Audit

Carried out after the end of financial period.

Carried out throughout the year

Interim Audit

Covers less than financial year and is carries

out during the year

Advantages of Final Audit

All records available:

Audit can be done in depth.

Faster work

No possibility of change of figures after

audit.
Relatively less expensive

Disadvantages of Final Audit

May be too late to detect errors or frauds.

Audit report may be delayed.
Not suitable for companies required to
publish quarterly accounts.

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Advantages of Continuous Audit

More detailed checking possible.

Errors and frauds detected quickly.
Positive psychological effect.
Accounting work remains up to date.
Audit report available quickly at year end.
Publishing quarterly, half yearly accounts
possible.
Less staffing problem for auditor.
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Disadvantages of
Continuous Audits

Figures may be altered after audit.

Inconvenience to accounting staff due to
frequent visits by auditor.
Possibility of lapse; something left out.

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Safeguards against
Disadvantages

No change in figures allowed; pass

another entry.
Records by auditors to ensure continuity.
More important ledgers may be audited
nearer to year end.

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Advantages of
Interim Audits

Helpful for publishing quarterly accounts.

Reduce year end work.

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How?

Balance Sheet Audit

Auditor starts from Balance Sheet and works

back to original entry and supporting records.

Vouching Audit

Auditor starts from original entry and

supporting records and works up through
ledger, to trial balance and right up to
financial statements.

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Thank you

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