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The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, quality management, water management, and energy conservation. Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. In any auditing the auditor perceives and recognizes the propositions before him for examination, collects evidence, evaluates the same and on this basis formulates his judgment, which is communicated through his audit report. Historically, the word auditing has been derived from Latin word audire which means to hear. According to Dicksee, traditionally auditing can be understood as an examination of accounting records undertaken with a view to establishing whether they completely reflect the transactions correctly for the related purpose. [2] In addition the auditor also expresses his opinion on the character of the statements of accounts prepared from the accounting records so examined as to whether they portray a true and fair picture. Auditing is a vital part of accounting. Traditionally, audits were mainly associated with gaining information about financial systems and the financial records of a company or a business. Financial audits are performed to ascertain the validity and reliability of information, as well as to provide an assessment of a system's internal control. The goal of an audit is to express an opinion of the person / organization / system (etc.) in question, under evaluation based on work done on a test basis. Due to constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements a concept influenced by both quantitative (numerical) and qualitative factors. But recently, the argument that auditing should go beyond just true and fair is gaining momentum.

The Definition for Audit and Assurance Standard AAS-1 by the Institute of Chartered Accountants of India (ICAI): "Auditing is the independent examination of financial information of any 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.

What is an audit?
An audit is the examination of the financial report of an organisation - as presented in the annual report - by someone independent of that organisation. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting

policies and other explanatory notes. The purpose of an audit is to form a view on whether the information presented in the financial report, taken as a whole, reflects the financial position of the organisation at a given date, for example: Are details of what is owned and what the organisation owes properly recorded in the balance sheet? Are profits or losses properly assessed? When examining the financial report, auditors must follow auditing standards, which are set by a government body. Once auditors have completed their work, they write an audit report, explaining what they have done and giving an opinion drawn from their work. With some exceptions, all organisations subject to the Corporations Act must have an audit each year. Other organisations may require or request an audit depending on their structure and ownership or for a special purpose.

TYPES OF AUDIT What Is Internal Audit?

Internal audit is a dynamic profession involved in helping organisations achieve their objectives. It is concerned with evaluating and improving the effectiveness of risk management, control and governance processes in an organisation. To do this, internal auditors work with management to systematically review systems and operations. These reviews (audits) are aimed at identifying how well risks are managed including whether the right processes are in place, and whether agreed procedures are being adhered to. Audits can also identify areas where efficiencies or innovations might be made. Internal audits are organised under an ongoing program of review and advisory activity this is based on the strategic needs of an organisation. In the course of their role, internal auditors work across all areas of an organisation. In addition to core areas of financial control and IT, they review the tangible aspects of operations, such as an organisations supply chain or IT systems; as well as more intangible aspects such as organisational culture and ethics. In fact, any system that has an impact on the effective operation of an organisation may be included in internal audits scope. Internal audit reports are presented to the CEO and board (via the audit committee) as they provide an independent viewpoint on the extent to which an organisation is poised for success and advice on areas for improvement. Internal auditors work in all sectors (public, private and not-for-profit) and may work as an employee of the organisation, or through an external service provider.

What is the Difference Between Internal and External Audit?

Internal auditors are often confused with external auditors, however, there are significant differences between the professions. External auditors focus on the accuracy of the annual report and financial statements whereas the internal auditor has

a wide reaching brief which considers anything which might be important to an organisations success.

Professional Standards in Internal Audit

The IIA provides an internationally recognised framework for internal auditing. The International Professional Practices Framework (IPPF) comprises mandatory guidance which is required and essential for the professional practice of internal auditing, and strongly recommended guidance which describes practices for effective implementation. These standards apply globally with over 160,000 internal auditors working within the framework.

Advantages of Internal Audits

1. The biggest advantage of internal audit is that it will lead to discovery of errors and therefore when external audit is done those errors which were discovered during internal audit would have been rectified by then. 2. Since internal audit is done by the employees of the company there is no additional cost involved which again is a big advantage for a company which is doing internal audit. 3. As internal audit is a constant procedure where records are checked regularly it ensures that accounting staff of a company keep the records up to date.

Disadvantages of Internal Audits

1. Internal audits report is not accepted by either the shareholders or tax authorities, it is the external auditor report which is required to be submitted to these parties. 2. Since internal audit is done by the employees of the company chances are that it may be biased and therefore company cannot depend on such reports. 3. Since an internal audit is not done by the professional auditor chances of internal auditor not detecting the errors are high.

An interim audit is type of auditing strategy that is normally utilized at some point during the current fiscal year. This type of audit makes it possible to complete at least some of the tasks that are involved with the preparation of a final audit once the fiscal year has closed. The benefit of this approach is that it is possible to provide shareholders and other interested parties with final audit data sooner than if the final audit was commenced after the fiscal year was completed.

Like any type of auditing task, an interim audit will involve close examination of financial records. Interim auditing standards are the same as those used to conduct any type of accounting or inventory check, and must comply with all policies and procedures that are part of the final audit process. 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. 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. 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. An interim audit does not usually yield any formal reports from the external auditors.


1. Publication Of Interim Figures :In some cases the publication f interim figures is compulsory. So in such cases interim audit is very useful. 2. Easy Detection Of Errors :By conducting the interim audit errors and frauds can be easily detected in time. 3. Check On Staff :When the staff of the client knows that at any time during the year accounts are checked for the interim period then they will not commit any fraud. 4. Completion Of Final Audits :If interim audit is countered then final audit can be completed very soon and easily. 5. Suggestions Implementation :In case of interim audit auditor's suggestions can be quickly implemented. 6. Satisfactory Work :Staff of the client may work with proper attention satisfactorily along with the advice of the auditor. 7. Convenient :Interim audit is very convenient for the management because they invite the audit staff when their business activity is low. 8. Interim Dividend :The management can easily prepare the accounts for proposed interim dividend. Interim audit is very useful to declare this dividend. 9. Moral Check :All the work done by any staff members of the company is checked by the auditor in the interim audit, so it provides the moral check.

10. Case Of New Partner :In a business when new partner enters, interim audit determines correct position of assets and liabilities. 11. Death Case :When any partner dies then interim audit is very helpful in determining the position of assets and liabilities . 12. Retirement Case :If any partner wants to leave or retire from the business then interim audit can easily determine the correct position of its assets and liabilities. 13. Price Fixing :Goods and services prices are fixed by the management and cost is calculated by adding the profit. The selling price is fixed and for this purpose interim audit is desirable. 14. Encourages Investment :Due to interim audit investor rely more on the company performance. He purchases and sells the shares keeping in view the audit report.


1. Disturbance :Regular accounting work of the interim audit disturbs the office work of the client. It is a disadvantage of this audit. 2. Burden Of Work :Audit staff will have also to prepare the audit notes when they will finish the interim audit. So the burden of work increases in this way. 3. Changing In Figures :A dishonest official may change the figures of accounts which is already audited by the auditor. So there are also a chance of fraud in such type of audit. It is a disadvantage. 4. More Expensive :This type audit only increases the expenses of business because it is not compulsory by law. 5. Not Useful For Third Party :It has no use for third party because this audit is used only to improve the efficiency and effectiveness of the accounting system.

Continuous Audit
An auditing process that examines accounting practices continuously throughout the year. Continuous audits are usually technology-driven and designed to automate error

checking and data verification in real time. A continuous audit driven system generates alarm triggers that provide advance notice about anomalies and errors detected by the system. Continuous auditing is not to be confused with computer-aided auditing. In computeraided auditing, the auditor is simply being assisted by technology, such as spreadsheets to complete a periodic audit. Computer-aided auditing is driven solely by the auditor, while continuous auditing is meant to run automatically at regular intervals.

Advantages of Continuous Audit

1. Early Location of Errors and Frauds In the Continuous Audit, the audit visit the clients after a short period. So, he is in a position to check the information completely in detail. It is helpful in checking the errors and frauds easily. If the audit is conducted after the year ended. It is not possible to find the errors or frauds easily. 2. Check on Frauds In the Continuous Audit the errors are located earlier. So it is also helpful in the early correction of errors and frauds because it is located at the time when it can be corrected earlier. 3. Quick Rectification Due to Continuous Audit errors are located easily and rectified at an early stage. 4. Special Attention Before the finalization of accounts an auditor has a sufficient time to pay proper attention to the checking of account and detection of frauds and errors. 5. Guidance to Client The auditor remains in touch with the business details, so he also indicates about the mistakes and gives valuable suggestions to the client to keep the accounts in proper manner. 6. Useful for Declaration of Dividend The continuous audit is also helpful for the declaration of the dividend. As the accounts are checked throughout the year, so the audit accounts are ready for the declaration of dividend. 7. Upto Date Accounts Accounts of the business are kept up to date by the staff because they know that auditor may visit and check the accounts at any time. 8. Chance of Over Looking Reduces Auditor has a close contact with the details of the accounts and he has also sufficient time to check the records. So the chances of over looking are reduced in this type of audit. 9. Quick Presentation of Accounts Continuous audit is very useful because accounts are maintained regularly. So as the financial years end final audited accounts are presented before the shareholders. 10. Accounts Completion Another audit benefit is the early completion of the accounts checking. The results of audit can be found out just at the end of the

accounting period. 11. Moral Check In the continuous audit the auditor make the surprise visit in the business. The clerks are not aware about the visit. So they are alert and efficient in their work. There is less chances of frauds in this type of business. 12. Convenient for Auditors In this audit, the several visits paid by the auditor to the clients office in enable his work to proceed easily and smoothly. It also increases his confidence in his capacity to do his work efficiently and effectively. 13. Regular Staff The regular visits performed by the auditor, make the clerks alert to maintain the accounts up to date and accurate for fear that the auditor may land up in the office any time. 14. Sufficient Time Continuous audit provides sufficient time to the audit staff. The important and ambiguous matters may require more time to draw conclusion. There is ample time for such matters. 15. No Missing Entries Continuous audit is also helpful in keeping the full record. In the record there is no missing entries. 16. Early Correction of Errors The continuous audit is helpful for early correction of errors. The auditor can point out

Concurrent Audit
The concept of concurrent audit has been introduced to reduce time gap between occurrences of transaction and is overview or checking. It serves the purpose of effective internal control. Concurrent audit is an examination, which is contemporaneous with the occurrence of transactions or is carried out as near thereto as possible. 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. We ensure that the transaction or decisions are within the policy parameters laid down, they do not violate the instructions or policy prescriptions, and that they are within the delegated authority and in compliance with the terms and conditions for exercise of the delegated authority. Concurrent audit is a systematic and timely examination of financial transaction on a regular basis to ensure accuracy, authenticity, compliance with procedures and guidelines.The emphasis under concurrent audit is not on test checking but on substantial checking of transactions. The concept of concurrent audit has been introduced to reduce the time gap between occurrence of transaction and is overview or checking. The concurrent audit serves the purpose of effective control as it is normally conducted by external agencies like chartered accountants firms.


The main advantage of concurrent audit include that any violation of procedure is brought to light. Ascertaining whether sanction for advances and expenditures is taken from competent authority. Examining books of accounts records and registers to ensure that they are maintained in accordance with the prescribed systems.Ensuring compliance of laid down systems, procedures and policies. Adequate measures are being taken in advance to prevent future frauds, etc., to avoid difficulties, which may arise.To check cash, securities, etc., to ensure that they are in due order and in agreement with books. Detection and arresting of any leakage of income, if any. Evaluating the quality of customer services provided and giving useful suggestions. Assessing overall performance of the branch while assessing productivity and profitability and to offer useful comments on the basis of audit conducted. Restriction of matter discussed on the spot with the help of concerned official. Reporting any inefficiency in any operational level. Reporting any irregularity in working which may result in financial or other loss to branch. Reporting to appropriate levels of managment for appropriate actions for remedial measures. Scrutinizing the completeness of documents submitted for availing advances and other facilities and physical checking of stocks and other assets at relevants places. To follow up with authorities to ensure timely rectification of irregularities reported which were not rectified on the spot. Verify prompt timely and regular submission of the periodical and statutory returns.

Annual audit
An annual review of the financial records of an organization, such as a business, a non-profit group, or a governmentagency. The audit may check the accuracyof records, compliance with accounting methods, and the soundness of financialpractices, including internal controls.

1. Audited accounts are readily accepted by Government authorities like Tax authorities and Central banks. 2. By auditing the accounts Errors and frauds can be detected and rectified in time. 3. Audited accounts carry greater authority than the accounts which have not been audited. 4. For accessing finance from financial institutions like Banks, previous years audited accounts are evaluated for determining repayment capability. 5. Regular audit of account create fear among the employees in the accounts department and exercise a great moral influence on clients staff thereby restraining them from commit frauds and errors. 6. Audited accounts facilitate settlement of claims on the retirement/death of a

partner. 7. In the event of loss of property by fire or on happening of the event insured against, Audited accounts help in the early settlement of claims from the insurance company. 8. In case of Public Company where ownership is separated from management, auditing of accounts reassure the shareholders that accounts have been properly maintained, funds are utilized for the right purpose and the management have not taken any undue advantage of their position. 9. To determine the value of the business in the event of purchase or sales of the business, audited account will be the treated as the base for the evaluation. 10.The audit of accounts by a qualified auditor also help the management to understand the financial position of the business and also it will help the management to take decision on various matters like report in internal control system of the organization or setting up of an internal audit department etc. 11.If the accounts have been audited by an independent person, disputes between the management and labor unions on payment of bonus and higher wages can be settled amicably. 12. In the event of admission of a new partner, audited accounts will facilitate the formation of terms and conditions for joining the new partner. Last 3 years audited accounts will give a general idea about the growth and financial position of the business to the new partner.

1. The payment of audit fees brings extra cost burden to the organization. 2. During an audit the auditor requires the attention several company staff and therefore causes disruption. 3. An audit does not assure future viability of the organization audited 4. An audit does not assure the effectiveness and efficiency of management. 5. Auditors express opinion and therefore does not give total assurance of the true fair presentation of annual reports.

Balance Sheet Audit

A balance sheet audit is an evaluation of the accuracy of information found in a company's balance sheet. It involves a number of checks as auditors conduct this evaluation based on supporting documents. After a balance sheet audit, you can use the analyses to detect irregularities or weaknesses in your company's accounting

system.A balance sheet approach to an audit consists of checking for the correct recordation of the existence, ownership and value of a company's assets and liabilities. With the balance sheet approach, the assumption is made, that if all the balance sheet accounts are tested and verified, then the company's profit/loss statement will not be significantly misstated. Usually, this type of audit focuses heavily on the reporting of a company's financial transactions, such as cash and other assets and the receipt and disbursement of funds (accounts receivable and accounts payable).

Previous Period Comparisons

Auditors compare figures from the current balance sheet with numbers from the previous period balance sheet. If there are significant differences between the financial statements, auditors dig deeper into the records to try to find a satisfactory reason for the change. For example, if the value of accounts payable has seen a marked increase, the auditors will try to determine the reasons for this increase. They will consider whether these reasons make sense in the context of the business.

Adequacy of Provisions And Reserves

When conducting balance sheet audits, the reviewers look into the status of credit extended by the firm to its suppliers and customers. By examining related documentation, they gauge whether the probability of payment for these debts is high, doubtful or somewhere in between. Based on this determination, they check if the provisions set aside by the company for bad debts are sufficient. Auditors also determine if the company's provisions for depreciation and other anticipated losses are at reasonable levels.

Accuracy of Valuations
Auditors examine whether the figures assigned to the various headings under the balance sheet are accurate. They compare the information in the financial statement with third-party documentation. For example, auditors will determine if the assets and liabilities found in the balance sheet exist. They confirm that the assets legally belong to the company and the liabilities properly attach to the firm. They also check restrictions on the use of the assets, and whether those restrictions must be disclosed.

Exceptional or Non-Recurring Items

Auditors also scrutinize the balance sheet for special transactions, one-time significant changes or other conditions with material effects on the figures. For example, they take note of any ongoing litigation that may impact the company's assets, liabilities or revenues. They pay special attention to any extraordinary transactions that cause significant changes to company profits. They also highlight changes to the accounting method that the company uses. This information helps business owners prepare for the next period because it separates those special circumstances that are unlikely to be repeated.

ADVANTAGES OF FINAL AUDIT :Following are the important advantages of final audit : 1. Alteration Chances Limited :After the final audit it becomes very difficult for any one to change the figures of accounts for his benefit. 2. Checking Of Complete Record :In case of final audit, whole the record is supplied to the auditor for checking. So all the facts about the financial year's are before the auditor. 3. Advantages For The Shareholders :Final account is very useful for the shareholders to know the real position of the company. Due to final accounts they feel more satisfaction. 4. Advantage For The Owner :Sometimes the business is so large that even one owner don't know the real position about the business. So final audit throws light on the business position and provides him satisfaction. 5. Suitable :Final audit is very suitable for the auditor and client staff. It saves both the parties from continuous disturbance. 6. Saving Of Time :The auditor visits the clients office once a year and goes on checking until the audit is completed. In this way time of both the parties is saved. 7. Legal Demands :For the joint stock companies audit is compulsory. So final audit has an advantage that it fulfills the requirement of law. 8. Economical :As compared to the continuous audit it is less expensive. Because in case of final audit auditor has to spend less time. 9. Improves The Efficiency :All the financial year client staff remains vigilant and efficient due to the fear of final audit. 10. Importance Of Goodwill :About the fairness and correctness of accounts final report is very important for the goodwill of the company. 11. Seasonal Business :In such cases the managers are free in the off season. So in that period they can pay proper attention to the auditors. Final audit is the most suitable for such business.

12. Continuous Process :Final audit is continuous process without any break from start to end. It becomes very easy for the auditors and managers. 13. Effective :If in control system is strong then chances of fraud are low and final audit is sufficient to carry out at the end of the year. 14. Popular Audit :Final audit is very suitable for small and medium scale business. Its cost is very low. It is very popular type of audit.


Following are the main disadvantages of final audit : 1. Shortage Of Time :The auditor has many clients and their financial year ends on the same date. So it becomes very difficult for the auditor to finish the work in time. 2. Delay In Report :When the work of audit will not be controlled in time. Audit report can not be presented to the shareholders. So it creates many problems for the company's business and goodwill. 3. Complete Checking Not Possible :It is very difficult for the auditor to check the each and every made in the books of account. He applies only test check to save the time. So many mistakes remain untouched. 4. May Misrepresent :There may be also a chance that audit report may not represent the correctness of accounts because each and every transaction is not checked. 5. No Moral Influence :The auditor visits once a year so he has no moral influence on the client stay to maintain the books correctly. 6. Record Of Past :Final audit relates the past data. If there were frauds and errors these have no concern with the present and future. 7. Time For Fraud :If staff is dishonest then it has enough time to plan fraud. Because staff knows that audit will be made at the end of the year.