Other Forms of Audit

The expression ‘audit’ generally refers to the financial statement of a company’s expenses. It is an essential aspect that every corporate entity must take into consideration. An audit is the examination or checking of account books to make sure that all departments are following the procedures and responsibilities that are allotted to them. There are various types of audits conducted in banks, companies, or other organizations. Concerning other types of audit in India, a management audit is a new concept borrowed from the USA. The sole aim of this audit is to help the company in profit maximization by focusing on the improvement of efficiency.

Types of Audit in India

There are generally two types of audits in India.

• Statutory Audits

• Internal Audits

Statutory audits are prepared to inform the Indian government regarding the condition of the finances of the concerned company. Such audit reports are prepared by independent auditors (to ensure fairness and accuracy) in the manner that is prescribed by the government.

Types of Statutory Audits that are common in India are given as follows.

• Tax Audit

• Company Audit

An internal audit is performed by the employees of the concerned company on behalf of internal management to analyze the efficiency of the company and its finances. Indian Companies Act governs the public and private companies and audits of banking companies and provides provision for an internal auditing system. 

Except for external audits and internal audits, the following types of audits are also prevalently used.

• Bank Audit

• Insurance Audit

• Government Audit

• Management Audit

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What is a Bank Audit?

A bank audit is a regular activity that is performed to inspect the financial activities of institutions to make sure that they are following the rules and regulations as prescribed by the statutes. An accounting expert, who is also known as a bank auditor, is appointed for the audit of banking companies. Bank audits can be either internal audits or external audits. 

The emphasis on the audit of a banking company is based on compliance. The object of a bank audit is to find out if the financial activities of the institution are fair, legal, and complete. The main aim of the bank audit is to conduct an independent inspection of the bank’s performance, controls, and information systems. Various examinations are carried out on the systems, the findings are generated as well and auditors suggest some possible reformative actions that the bank should take. 

Types of Bank Audits

There are many types of bank audits. Some of them are as follows.

• Risk-based internal audit

• Concurrent audit

• Statutory audit and tax audit

• Credit audit

• Stock audit

• Snap audit

• Forensic audit

• RBI Inspection System audit

• Foreign exchange

The bank audit unveils the infringements of rules or regulations governing financial institutions and failures in compliance with the institution’s policies. Bank auditors look for the main set of issues so that they can come up with profiting suggestions. Their discoveries are documented and noted on file by the bank.

Risk-based internal audit is a type of bank audit that recognizes risks, such as:

• Finance risk

• Expenses risk

• Functioning risk

• Consistency risk

• Strategic risk

• Goodwill risk

• Credit risk

• IT and cyber risk 

Government Audit

There is the same provision for government auditing as there is for the audit of banking companies, organizations, and institutions. The central government and state government both are audited respectively. 

The Comptroller and Auditor General of India (CAG) is the authority to keep a keen eye on the following. The Comptroller and Auditor General of India make sure that financial transactions done by the central and state government are implemented accurately and with the proper authorization. The main emphasis is given to the expenses done by governments.

Insurance Audit

Sec 12 of the Insurance Act, 1938 provides that the financial statements of an insurer have to be audited annually by an auditor. The audit of insurance companies is to be done by an independent auditor, whose duty is to inspect the policies, liabilities, risk evaluation, and several other financial records of the company. It is one of the most important types of audits in India.

The audit of insurance companies is conducted to make sure that proper insurance rates and premiums are being given. Despite that, the insurance auditor must keep a check on quality control between insurance companies and customers. 

Solved Example

Q1. Name some essential points involved in an Insurance Audit?

Answer: The following are the essential points in the audit of insurance companies.

• Verification of premium

• Verification of claims

• Verification of commission

• Verification of operating expenses. 

Hence, it is clear that there are various types of audits in India such as insurance audits, government audits, bank audits, etc. 

Did You Know?

Statutory audits are performed in India for each fiscal year which is from April 1 to March 31, not as per the calendar year.

Management audits have been introduced recently and it is a new concept in India. The idea of a management audit has originated in the USA.

IRS Tax Audit

IRS tax audit is an external audit that helps to find out if the tax returns filed by your business are correct or not. It is performed by a person who is not connected to your business in any way. It helps to determine if the tax payments made by you are accurate or not. IRS tax audits can be done in three different ways. It can be done digitally, on your company premises, or over the phone. 

Financial Audit

IT is the most common type of audit. Every business must conduct a financial audit as it helps to ensure that the information given in the financial statements is correct. Auditors verify the financial details of business related to revenue, assets, and expenses. Financial audits are useful for shareholders and investors who can make a decision on the final outcome of a financial audit report. 

Operational Audit

Operational audits are done to know the effectiveness of the operating systems of a business. This audit is done by an internal team but some businesses also opt for an external team of auditors. It helps to uncover ineffectiveness and wastage in a business. It also helps to determine the use of resources to meet business goals and identify how improvement can be made in the business operations.

Compliance Audit

A compliance audit is an audit conducted by educational institutions and industries where regulation is required. It helps to determine if the business is complying with internal and external regulations or not. It can be done for different departments. Compliance audit helps to reveal if the business is complying with the regulations such as proper working conditions or not. 

Information System Audit

An information system audit is done to know if your business is using the best security practices so that an external entity such as a hacker may not get access to your business data. It includes checking if the best practices are being used by your business to make sure the proper functioning of the IT systems in the business. It also helps in determining the data processes and accuracy of data from these systems.