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11 Different Types of Audits That Can Help Your Business

What is an Audit?

Audit is a form of analysis. Auditors may be engaged to audit financial statements, managerial accounts and reports, accounting records, operating reports, income reports, and expense reports. In several types of audits, a Certified Public Accountant (CPA) is appointed to obtain reasonable assurance. 
Its records are presented fairly, accurately, and meet certain standards. The audit team reports its findings to the company’s shareholders and other internal stakeholders in the form of an audit report. Sometimes its reports are presented to external department or stakeholders such as creditors, firms, banks, public or the government.

A not unusual place false impression is that audits are bad – it’s now no longer true. The manner may be time-consuming, however organizations can advantage from audits! They can use audit findings to enhance budget and inner controls, divulge fraud risks, and assist stakeholders make greater knowledgeable decisions.

SK Financial Services always strives to offer valuable financial insights to keep you informed about various financial options. In this post, we define eleven kinds of audits, with some examples.

Different Types of Audits

1. Internal Audits

In the list of different types of financial audits, we placed internal audit at first. Internal audits check inner controls, processes, criminal compliance, and the safety of assets. The inner audit procedure may be a beneficial device for corporations to assess danger. It become aware of actionable approaches to enhance performance. 

Internal audits are executed via way of means of people in the organization. While those people aren’t impartial of the organization, they must be impartial of the sports they’re auditing. 

Reports are dispatched to management, the board of directors, or the organization’s audit committee. An inner audit may be useful for your commercial enterprise operations. However it doesn’t update an audit achieved according with commonly usual auditing standards (GAAS).

If an enterprise decide to internal audit from outsource, the outsource team will talk together along with your inner audit group. Internal audit committees have to be organized to percentage records accrued from their audit techniques with the outside auditors.

2. External Audits
External Audit on the second place in the list of different types of financial audits. Third party – together with an unbiased CPA firm – conducts outside audits. Once the audit is complete, a record is sent to shareholders and stakeholders outdoor of the organization. While outside audits can also additionally range in what they audit (economic statements, utilization of federal funds, etc.), the principle advantage is the independence and objectivity of the audit team.
This offers shareholders and outside stakeholders extra self assurance within side the audit technique and report.
Example: A producer of vehicle components is a publicly-traded company. Publicly traded agencies and groups that promote their stocks to the general public are required to have an outside auditor audit their monetary statements. 
Next, find out about particular forms of audits that may be accomplished internally, externally, or both.
3. Financial Statement Audits

Financial assertion audits contain unbiased auditors who will file on whether or not a company’s monetary statements align with the relevant monetary reporting standards. Auditors require to perform 3 things:

  1. Identify and verify dangers of fabric misstatement, whether or not because of fraud or errors
  2. Obtain enough audit proof approximately whether or not fabric misstatements exist
  3. Form an opinion at the economic statements or decide that an opinion can’t be formed

According to the AICPA, those audits, usually suitable and frequently, require when looking for excessive stages of financing or out of doors investors, or while promoting a business.” The document can assist different businesses, investors, stakeholders, etc., make knowledgeable choices approximately the company.

Example: If a small commercial enterprise holds a mortgage or line of credit score with a financial institution, the financial institution may also require the commercial enterprise to go through a economic declaration audit.

4. Performance Audits

Performance audits cowl a extensive form of assessments. An entity can also additionally request or require a overall performance audit to assess any of the subsequent objectives:

  1. Program effectiveness and results
  2. Internal controls
  3. Compliance with sure requirements
  4. Prospective analysis

These goals aren’t jointly exclusive. If an auditor is comparing software effectiveness, he might also additionally want to audit inner controls too. Performance audits are useful due to the fact they are able to assist control and people charged with governance and oversight enhance application overall performance and operations, lessen costs, facilitate decision-making, and make contributions to public accountability.

Performance audits are normally related with authorities agencies due to the fact they obtain federal investment and want to reveal they use the budget appropriately.But non-governmental overall performance audits are not unusual place too.

Auditors need to observe commonly widespread authorities accounting standards (GAGAS) – aka Yellow Book – whilst engaging in authorities overall performance audits. According to the AICPA, overall performance audits carried out beneath GAGAS can offer the highest of assurance, because the auditor determines the scope primarily based totally on those requirements.

Examples of overall performance audits include:

  • Ensuring authorities offerings and blessings are introduced to residents primarily based totally on eligibility
  • Providing conclusions on modern and projected tendencies and the capacity effect at the business
  • Analyzing the cost-effectiveness of a software or pastime primarily based totally on blessings furnished and outcomes achieved
5. Operational Audits

Operational audit is also very important in the list of different types of financial audits. It evaluate an organization’s sports with regards to unique objectives. An auditor will examine processes, procedures, and systems; and examine operational effectiveness, efficiency, and productivity. Benefits of an operational audit encompass locating possibilities for development and growing recommendations.

Many businesses behavior operational audits internally. However, businesses can also additionally rent an outside specialist. Organizations can advantage from running with a CPA, as they have got professional knowledge, training, and revel in in appearing audits. Some accounting corporations additionally have control advisory service (MAS) experts or Certified Management Accountants (CMA) which can provide their expertise.

Example: A commercial enterprise can also additionally have an auditor overview its human sources department.The auditor will look at branch processes and the way correctly it makes use of resources. The very last file ought to encompass a complete branch assessment and become aware of possibilities for improvement.

6. Employee Benefit Plan Audits

An worker advantage plan (EBP) audit analyzes and evaluates your advantage plan’s economic statements. This form of audit can spotlight possibilities for development inside plan operations, efficiencies, controls, and the way nicely the plan complies with pick out regulations. Independent public accountants are the simplest specialists certified to carry out worker gain plan audits.

Example: If your enterprise gives a gain plan (inclusive of 401(k), 403(b), and worker inventory possession plans), a defined advantage pension plan, or a fitness plan to extra than one hundred eligible participants, you could want an audit.

7. Single Audits

Single audits are just like a report cards. They tell federal organizations if there are issues with how grantees use federal funds. Single audits especially complicated as auditors have to carry out the audit according with GAAS and GAGAS. Plus, the auditor ought to overview the complete entity’s compliance and inner controls, now no longer simply a selected department or program.

8. Compliance Audits

A compliance audit, while an entity, audited to decide if it complies with a government’s rules, standards, and requirements. A authorities units the necessities and hires an auditor to assess the entity’s compliance with them.

This kind of audit determines whether or not the entity is complying with nearby laws, regulations, rules, and provisions of contracts or supply agreements. According to the AICPA, compliance audits, normally carry out along with a economic audit.

Example: A compliance audit can decide if a mill is following the Environmental Protection Agency (EPA) recommendations for waste disposal. The EPA could ship their inner auditor or lease an audit corporation to evaluate the commercial enterprise and document their findings.

9. Information System Audits

Information machine audits compare the control controls inside a company’s statistics technology (IT) infrastructure. An audit will decide if the structures are safeguarding assets, preserving facts integrity, and working effectively. Businesses can gain from this sort of audit due to the fact it may assist discover possibilities and risks, align evaluation and strategy, and enhance commercial enterprise procedures. Businesses can pick to have those audits carried out independently or in the course of a economic announcement or inner audit.

This form of audit can be conducted by Certified Information Systems Auditors (CISA). Audit sports encompass interviews with enterprise customers and staff, documentation analysis, and software program controls checks.

IT structures are complex. Most facts gadget audits are custom designed to in shape the desires of the organization. Audits can also focus on IT processes, unique areas of the business, or data privacy.

10. Payroll Audits

Payroll audits assessment payroll tactics and reports. Audit can assist become aware of errors, enhance compliance, and guard the commercial enterprise from fraud. An inner auditor or a third-birthday birthday celebration auditor – like a CPA – can carry out payroll audits.

The auditor will evaluate your company’s payroll data and decide if they’re accurate, timely, and complete. If they locate errors, the auditor will appearance to pick out gaps in approaches that caused or ought to cause inaccuracies. Discovering any vulnerabilities will let you make corrections and preserve or enhance compliance.

For maximum companies, annual or semiannual payroll audits are recommended. Regular payroll audits can assist your business enterprise hold compliance and reinforce your economic controls. Payroll audit cannot be removed from the list of different types of financial audits.

11. Forensic Audits

A forensic audit examines a company’s economic facts to pick out unlawful finance activity. The auditor – a forensic accountant – will search for proof that can be utilized in courtroom docket or for war decision amongst shareholders.

Your enterprise can also additionally want a forensic audit if people suspect fraud, theft, or inaccuracies (each nice and negative) in account balances.

Example: Company A enters right into a settlement with Company B. However, Company B isn’t legal to do enterprise due to the fact its license is suspended because of abnormal tax payments. Company A’s CFO knew approximately this however moved ahead with the deal due to the fact the CFO acquired direct repayment from Company B. Forensic audits can stumble on this kind of fraud and offer proof if fraud does occur.

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