1. Internal Audit.
2. External Audit.
1. Internal Audit
Many concerns have auditors within their organization whose duties consist of checking continuously the financial operations from day to day. For example, it is the duty of the night auditor of a hotel to audit the records of the previous day's transactions. Such an auditor performs what is commonly known as an internal audit. The purpose of internal audit is to see that proper accounting and operating methods are set up to care for the financial transactions as they occur; to see that these methods are followed ; and the records show the true financial conditions as they exist.Advantage of Internal Audit
The internal audit has the advantage that it is usually a daily verification of the financial operations of the business ; it has a continuous check on the operations.
2. External Audit
Financial statements based upon audited reports due to policies and influences which may not be of the best, may not show true financial conditions. As a result there has steadily grown the demand for external audits made by public accountants, in addition to the regular audits made by the company employees.
Advantages of External Audit
The advantages of external audit may be summarized as follows:
1. It serves to assure the stock-holders that the activities of the concern are being properly accounted for.
2. It serves a periodic assurances to the responsible officials of their proper custodianship.
3. It provides a periodic review of the methods and the procedures of the office and accounting departments by an outside party whose knowledge should be much broader than that of the company employees, hence providing a method of aiding the management maintain up-to-date methods and policies.
4. It provides a periodic analysis of operations by outside parties whose training and practice provides a broad background of experience usually not found among the employees of the company.
5. It serves to assure the taxing and other concerned authorities that the activities of the concern are being properly accounted for:
2. It serves a periodic assurances to the responsible officials of their proper custodianship.
3. It provides a periodic review of the methods and the procedures of the office and accounting departments by an outside party whose knowledge should be much broader than that of the company employees, hence providing a method of aiding the management maintain up-to-date methods and policies.
4. It provides a periodic analysis of operations by outside parties whose training and practice provides a broad background of experience usually not found among the employees of the company.
5. It serves to assure the taxing and other concerned authorities that the activities of the concern are being properly accounted for:
Classes of External Audit
Following classes of audits are found in practice:
1. Final or Completed Audit.
2. Continuous or Running Audit.
3. Interim Audit.
Final or Completed Audit---is one which is started after the close of the accounting year of the business, and is then carried on until completion. This is the most satisfactory form audit from the auditor's point of view and is most common in practice. The auditor is at once placed in possession of the full facts relating to the year under review and he/ she can pursue the books and accounts duly completed in respect of that year.
Continuous or Running Audit---is one where the auditor attends at intervals during the financial years and checks the books to date as far as possible. It is applicable in the following cases:
(a). In the business with numerous transactions.
(b). In the business with large turnover or where there is the necessity of considerable detailed checking.
(c). In establishments where the Final Accounts and Balance Sheet are required soon after the close of the financial period e.g. Banks.
(d). In the concerns where there is an inadequate or no system of internal check.
(e). In the concerns where monthly Profit and Loss Account and Balance sheet and other interim accounts are regularly required.
2. Continuous or Running Audit.
3. Interim Audit.
Final or Completed Audit---is one which is started after the close of the accounting year of the business, and is then carried on until completion. This is the most satisfactory form audit from the auditor's point of view and is most common in practice. The auditor is at once placed in possession of the full facts relating to the year under review and he/ she can pursue the books and accounts duly completed in respect of that year.
Continuous or Running Audit---is one where the auditor attends at intervals during the financial years and checks the books to date as far as possible. It is applicable in the following cases:
(a). In the business with numerous transactions.
(b). In the business with large turnover or where there is the necessity of considerable detailed checking.
(c). In establishments where the Final Accounts and Balance Sheet are required soon after the close of the financial period e.g. Banks.
(d). In the concerns where there is an inadequate or no system of internal check.
(e). In the concerns where monthly Profit and Loss Account and Balance sheet and other interim accounts are regularly required.
Interim Audit---Where it is desired to know the reliable trading results of a business for a part of the year, the proprietor may arrange for an interim audit to be carried out during the year. For example, where the directors of a company desire to declare an interim dividend, they may require the auditor to perform an interim audit for the purpose of ascertaining the true profit for the first half year.
No comments:
Post a Comment