tupes of audit

8/12/2019 Tupes of Audit

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INDRODUCTION

The word, audit is derived from the Latin term audirewh ich means to hear.In early days an Auditor used to listen to the accounts read out by the accountant in order to

check them. Businessman wanted assurance that their book- keepers had accurately and

properly kept the books of account. An auditor is an independent expert who examines the

account of a business concern and report whether the final accounts are reliable or not.

The Indian companies Act, 1913, prescribed for the f irst t ime the qual i f icat ion for an

auditor in India. A person passing the examination of the Government Diploma in

Accountancy conducted by the provincial Government qualified to be an auditor. This is the

latest development in the field of auditing. Today computers are used not only for recording

transactions but also for auditing.

The final accounts of a business concern are used by various persons such as theowners, shareholders, investors, creditors, leaders, government etc. for different

purposes. All these users need to be sure that the final accounts prepared by the management

are reliable. An auditor is an independent expert who examines the accounts of a business

concern and reports the final accounts are reliable or not. Different authorities have defined

Auditing as follows:

Auditing is the process of gathering and evaluation of the economic information with

the purpose of reporting on it

According to MautzAuditing is concerned with the verification of accounting data, with determining the

accuracy and reliability of accounting statements and reports.

A.W.Hanson defined auditing as,

An Audit is an examination of accounting records to establish their reliability and the

reliability of statement drawn from them.

Statement on Standard Auditing Practices (SAP) 1 by 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 anexamination is conducted with a view to expressing an opinion thereon.

Features

1. It is the systematic and scientific examination of the accounts of a business.

2. It is an intelligent and critical examination of the accounts of a business.

3. It is done by an independent person or body of persons qualified for the job.

4. It is a verification of result shown by profit and Loss Account and the state ofaffairs shown by Balance Sheet.

5. It is a critical review of the system of accounting and internal control.


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6. It is done with the help of vouchers, documents, information and explanationsreceived from the authorities.

TYPES OF AUDIT

CHART SHOWING DIFFERENT CLASSES OF AUDIT

A. BASED ON ORGANISATIONAL STRUCTURE

I. Statutory Audit:

Statutory Audit is compulsory auditprescribed under statute i.e. law. Appointments ofauditors, removal, remuneration, rights, duties, liabilities are governed as per the Provisions ofthe respective law applicable to the organization. Scope of the audit work and all others terms

are as laid down by the law. It can be conducted only by a qualified Chartered Accountant.

Statutory audit is condu cted af ter preparat ion o f f inal accounts .Statutory auditor

has to report whether the balance sheet and profit and loss A/c are drawn upon conformity

with law and whether they show true and fair view. Statutory auditor has to submit report to the

shareholder. His remuneration is fixed by shareholder. The concerns and the corresponding

Acts are as shown in the following Exhibit:

EXHIBIT [1.1] STATUTORY AUDIT

No. Concern Act1 Companies

- Financial audit- Special audit- Cost audit

Companies Act, 1956

- S.227- S.233A- S.233B

2 Banks Banking Companies Regulation Act,1949

3 Insurance Companies Insurance Act,1938

4 Co-operative Societies Respective State Co-operative Act

5 Public Charitable Trusts Indian Trust Act etc.

6 Statutory Corporations Special Act of Parliament e.g. Life Insura

orations.7 Electricity Companies Electricity Supply Act, 1948

8 Registered Societies Societies Registration Act

Or anizational

Non-statutory (Private)

Government Audit

Statutor Audit

Sole Proprietorship

PartnershipFirm

Individuals and Non-

profit Organization


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9 Tax Payers Tax Audit under Income-tax Act

II . Government Aud i t

Meaning and Scope: Government audit is a control measure for publ icaccount ing of government funds.It covers the audit of all expenditure and receipts doneby the executive and audit of commercial accounts maintained by public enterprises. Publicenterprises are classified under three categories department undertaking, statutorycorporations financed by government and government companies set up under the CompaniesAct, 1956.

Who conducts it: In India, the Accounts and Audit Department of the

Government of India, headed by the Auditor General of India (CAG), carries th e audit

work .The CAGs duties have been specified by the Comptroller and Auditor Generals Act,1971

III. Non-statutory audit:

Non-Statutory Audit is voluntary audi t .They are not compulsory under any law. It is

carried at the discretion of the proprietor terms and conditions of the audit are determined as

per the agreement made between the auditor and proprietor. Example: Financial audit of the

sole t rader and partnership f i rm.Voluntary audit also covers non-financial audit. Internal

audit, management audit, social audit, operational audit etc.

Private Audit

Private audit are carried out at the behest of the interested parties and not to fulfillstatutory requirements. The terms and conditions between the client and the auditor defines

the scope of latters work. Sole propr ietors , partnership f i rms, certain in div iduals such

as rent col lectors, estate managers, etc. and non-prof i t organizat ions such as

sch oo ls, hospitals, clubs , etc. , get the accounts audited for various reasons. Some of

these are to meet the requirements laid down by internal rules and regulations, to ensure

reliability of financial statements and derive related advantages. These are listed below:

1. Audit of Small Entities (Propriety Audit)

Guidance Note on special considerations in the Audit of Small Entitiesby theInstitute of C.A of India published in October, 2003

Meaning and Features

A small entitle (SE) has the following features:

a. There is a concentration of ownership and management in a small number ofindividuals (e.g. proprietor or partner).

b. Source of income are few.

c. Activities are simple.

d. Record-keeping is simple and personalized.

e. Internal control is limited.


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f. Management may at times ignore such internal controls.

Special Features of Audit

a. Audit Procedures:The nature and extent of audit procedures and working papers

are influenced by special features of SE described as above.

b. Fraud and Errors : Auditor should check the following circumstances whichindicate the possibility of fraud and Errors:

Whether owner needs to manipulate the accounts (as the SE is his only source ofincome).

Whether personal and business transactions are mixed up.

Whether advisor (lawyer, etc) are changed frequently.

Whether advisor starts too late or has to be finished in a hurry.

Whether there are unusual material transactions around year-end. Whether there are unusual transactions with group concern.

Whether excessive fees/ commission is paid.

Whether there disputes about taxes.

Whether accounting records are partly missing.

Whether cash transactions are too many.

Whether documents for many transactions are inadequate.

Whether many confirmations for debtors/stock have not been received back.

Whether owner/senior manager have not been leave for long period.

Whether working capital is insufficient.

Whether remarks in earlier audit report are ignored.

Whether stock records are not kept.

2. Audit of Partnership Firm

The matters which should be specially considered in the audit of accounts of a

partnership firm are as under:

a. Appointment: Confirm that the letter of appointment, signed by a partner, on behalfof firm, clearly states the nature and scope of audit expected by the partnersspecially the limitation, if any, under which the auditor shall have to function.

b. Partnership Deed: Examine the partnership deed signed by all partners and itsregistration with the registrar of firms. Also ascertain from the partnership deedabout capital contribution, profit sharing ratios, interest on capital contribution,powers and responsibilities of partners, etc.

c. Minute Book: Study the minute book, if any, maintained to record the policydecision taken by partners specially the minutes relating to authorization ofextraordinary and capital expenditure, raising of loans, purchase of assets,extraordinary contracts entered into and other such matters which are not of aroutine nature.


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d. Authorized Business: Verify the business in which the partnership is engaged isauthorized by the partnership agreement; or by any extension or modificationthereof agreed by the partners subsequently.

e. Books of accounts: Examine whether books of accounts appear to be reasonableand are considered adequate in relation to the nature of the business of the

partnership.

f. Unauthorized Acts: Verify generally that the interest of no partner has sufferedprejudicially by an activity engaged in by the partnership which it was not authorizedto do under the partnership deed or by any violation of a provision in the partnershipagreement.

g. Taxes: Confirm that a provision for the tax payable by the firm has been made inthe accounts before the arrival at the amount of profit divisible among the partners.Also see that the various requirements of law especially applicable to thepartnership firm like section 44(AB) of the Income-tax Act, 1961 have been

complied with.

h. Division of Profits: Verify that the profits and losses have been divided among thepartners in their agreed profit-sharing ratio.

3. Audit of trusts (non-profit organizations)

1. The audited statements can serve as a basis for relying on the persons at the helmof affairs i.e., members of governing body or managing committee.

2. It helps in dealing with third parties.

3. It helps in protecting the assets and ascertaining the liabilities.

B. BASED ON SCOPE

I. Complete Audit:

In this type of audit, the auditor is required to check each and every transaction

recorded in the books of accounts. He has to examine each and every voucher, document or

correspondence relating to the transaction. This type of audit is not possible for large sized

organizations.

II. Partial Audit:

Based on Scope

Detailed Audit

Partial Audit

Complete


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In Partial audit, the auditor is not required to examine all the books of accounts. Only a

part of the accounts or some transactions as desired by the clients may be scrutinized. Auditor

has to state the area covered by the audit.

This type of audit cannot be followed in the case of statutory audit. It may be followed in

the case of statutory audit. This audit is not convenient when the audit is legally required.

III. Detailed Audit

Under detailed audit, few business transactions are examined in detail by the auditor.

Spicer and Peglerhave defined it as, An audit which starts with books of prime entry and ends

wit the balance sheet. The checking sequence is arranged in order of recording the

transactions in the primary book.

Thus, for the purpose of detailed audit certain transactions are traced through various

stages from beginning to their end with the help of available evidence. This technique ofexamination is also called audit-in-depth. To take an example, detailed audit of purchase of

goods for inventory would consist of tracing the transaction though all the points of transaction

cycle viz., requisitioning the goods, ordering the goods requisitioned, receiving the goods

ordered and preparing the payment voucher.

C. BASED ON TIME

I. Continuous Audit:

Meaning:

Continuous audit is defined by R.C. Williamsas one where the auditor is constantly or at

(regular or irregular) intervals engaged in checking the accounts during the period.

Continuous Audit means an audit at regular intervals throughout the accounting year.

Generally, the audit work begins after the accounting year is over. But in case of

Continuous Audit, the work begins the accounting year itself.

For example, if the accounting year begins on 1stApril 2002 and ends on 31stMarch,

2003 normally, audit work would begin in April 2003 and continue thereafter. But in case ofContinuous Audit the work would begin in April 2002 itself and continue at regular intervals till

it is complete. Thus in Continuous Audit, accounting and auditing work is done almost side by

Based On Time

Final Audit

Continuous Audit

Interim Audit

Balance sheet

Audit


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side. Continuous Audit, however, does not mean the audit work goes on for 365 days of the

year. The auditor may make periodical visits, say, every two or three months during the year

and at the end of year we would verify the final statement of account.

Necessity

Continuous Audit is necessary in the following cases-

a. Where the volume of transaction is very large and complex.

b. where the management requires monthly or quarterly audited statements ofaccounts or the statements of accounts are required immediately after theaccounting year;

c. Where the system of internal control or internal check is weak.

d. Sometimes continuous audit becomes necessary for self-survival against cut-throatbusiness competition.

e. When interim dividend is to be declared.

Advantages of Continuous Audit

a. Quick Preparation of Final accounts: Since, the routine audit is donecontinuously; the Final Accounts can be prepared immediately after the year end.

b. Early Dividends to Shareholders: The shareholders would be happy as theyreceive dividends soon after the end of the financial year. The Company canprepare interim accounts and pay even interim dividends to the shareholders.

c. Up-to-date Accounts for Banks/Investors: The up-to-date final accounts areuseful to banks and investors for taking decisions regarding loans and investment.

d. Check on Employees:Since the auditors visit regularly throughout the year, it actsas check on the employees to keep the accounts ready and up-to-date.

e. Prevents Errors and Frauds:Constant checking by the auditors helps to detectand even prevent errors and frauds.

f. Familiarity with Clients Business: Since the auditor spends more time at theclients place, he becomes familiar with all the aspects of clients business.

g. Thorough Audit: The auditor has more time at his disposal to do a throughchecking of all transactions. This reduces the risk of missing any material items.

h. Utilization of Audit Staff:Audit Staff can be kept busy throughout the year. Auditwork can be evenly distributed to avoid overwork after year end.

II. Final Audit

It is also known as periodical audit. It is generally start after the completion aspect

more than the depth aspect of audit. The danger of alteration of figures or manipulation of

accounts is totally absent. Generally, it starts after the close of the financial period. There is

very little impact on prevention of errors and frauds by way of moral checks. It is best suited for

small and medium sized business. It saves in terms of time, energy and money.

Final Audits have the following advantages

a. Inexpensive: Since the audit spends normal time on the audit work, the audit feesare also normal. Final Audit is thus inexpensive. Even a small organization (a sole


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trader or a firm) can opt for a Final Audit to obtain the advantages of anindependent financial audit.

b. Audit at a Stretch: Since the audit work is done at a stretch, without any gaps,audit is carried out efficiently. All queries are solved immediately. The work is done

continuously and not in installments. The audit planning and programme are simple

c. Less errors and Frauds: Since the books are checked at a stretch, no employeecan change any figures in the audited books.

d. Do not Disrupt Accounts Work: The accounts staff is not disturbed anytime duringthe accounting year. There is no need for the accountants to attend to audit workevery now and then.

Final Audit has the following disadvantages

a. Delay in final Accounts: Since the routine audit is done after a year end, the Final

accounts may be delayed and ready long after the year end.

b. Late Dividends to Shareholders: The shareholders would be unhappy as theyreceive dividends long after the end of the financial year. It would be difficult for aCompany to prepare interim accounts and pay interim dividends to the shareholdersduring the financial year.

c. Stale Accounts for Banks/Investors: The final accounts are available long afterthe end of the accounting year. Such stale accounts are not useful to banks andinvestors for taking decisions regarding loans and investment.

III. Interim Audit:

Meaning:

Interim Audit is an audit conducted in between the annual audits. It is conducted to find

out the interim profit and know the financial position at the end of a part of the accounting year.

For example, an audit of accounts prepared for the period of six months from 1 stApril to 30th

September, would be Interim Audit.

When Conducted:

Interim Audit is conducted in the following cases

a. Quarterly Results: Public Limited Companies listed on the stock exchange has todeclare their quarterly results. It is preferable, though not compulsory, to declaresuch results on the basis of interim audit.

b. Interim Dividends: Interim audit is also advisable when a company intends to payinterim dividends. Interim audit would ensure that there are enough profits to justifypayment of interim dividends.

c. Sale of Business: In case of a sole partnership firm, interim audit becomesnecessary on admission, retirement or death of a partner, dissolution of partnership,sale of a firm to a company, valuation of goodwill etc.

d. Changes in Firm: In case of a proprietor, interim audit may be conducted when thebusiness is proposed to be sold, to fix the purchase consideration.


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How Conducted:

An interim audit should be done as if it is the final audit for the concerned period. Thus, it

would involve not only vouching but also verification of assets and liabilities, valuation of

closing stock, computation of depreciation, confirmation from parties and so on. Once an

interim audit is done, at the time of the final audit, the auditor has to concentrate only on theremaining period. Thus, interim audit helps in timely completion of final audit. The auditor at

the time of final audit, however, should ensure that there are no alterations in the books

previously checked by him. He should carefully compare the final accounts with the interim

accounts to find out if they are consistent.

Advantages

Interim audit is similar to Continuous Audit and enjoys similar advantages:

Disadvantages and Precautions:

a. Expensive: Since the auditor does two audits in one year, the audit fees are moreto that extent. Interim Audit is thus expensive.

b. Audit in Installments: since the audit work is done at two stages (interim and final)and not at one go, audit may be inefficient. It is difficult at the time of final audit totake up the work precisely at the stage where it was left at the time of interim audit.To overcome this, audit should be well-planned. The work done up to end of theinterim audit, relevant voucher numbers, totals, etc. should be carefully noted in theAudit Note book.

c. Disrupts Accounts Work: Interim audit disrupts the work of accounts staff. Toavoid this advantage, the audit programme should be co-ordinated with the client toavoid disruption in routine accounts work. The client should appoint an employeespecially to co-ordinate with and attend to the auditors.

IV.Balance Sheet Audit:

Balance Sheet Audit is an American terms which means verification of the items

appearing in the balance sheet. It includes verification and valuation of assets and liabilities

appearing in Balance Sheet.

Profit and loss account is not given much importance in this type of audit. In balancesheet audit, the auditors assume that there is a reliable system of internal check and internal

audit. Balance sheet is also referred as Limited Audit. Such a type of audit is used where the

size of the type of audit is used where the size of the company is very large. Under balance

sheet audit accounts are verified and tests are imposed only on those items in Profit and Loss

A/c which are directly related to assets such as depreciation, repairs, bad debts etc.

Applicability:Balance sheet Audits are not conducted in all cases. Such Audits are conducted in case

of very large organization banks, etc. in the following circumstances

a. The Internal Control System is very strong.The controls have been developedand tested over the years. The controls are capable of detecting and preventingerrors and frauds.


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b. The volume of transaction is so largethat an in-dept checking is impossible. Adetailed vouch-and-post audit is not possible if the final accounts arte to be ready in

time.

c. The concern has its own internal audit department. The statutory auditor,therefore, need no duplicate this work.

d. The accounts staff is highly qualified, the management is professional and accountsare computerized.

Method:Balance Sheet Audit is conducted in the following manner

1. Review of Internal Controls: The auditor must evaluate the system of internalcontrols in the following respects

a. Whether the internal controls are effective: If the internal controls are effective,auditor can concentrate on material items instead of checking arithmetical accuracy ofvouchers and books. He should study the internal control system with the help ofquestionnaires, manuals, organization charts and flow charts.

b. Whether the internal controls are in operation: He should carry out tests toascertain that the controls are actually in operation. Based on his evaluation of theinternal controls, the auditor should plan his audit programme.

2. Verification of Items in the Final Accounts: He should verify the major items ofassets and liabilities and income and expenditure appearing in the Final Accounts (BalanceSheet and Profit and Loss) in the following manner

a. Verification: He should carry out physical verification of major items of assetsand liabilities on sample basis.

b. Inspection: He should inspect documents of title etc. in respect of major itemson sample basis to verify whether such transactions actually occurred, andwhether such transactions are recorded in the books for the right amount.

c. Vouching: He should vouch only the major transactions on sample basis toascertain whether such transactions are actually occurred by the concern; andwhether such transactions are recorded in the books for the right amount.

d. Valuation: He should satisfy himself that the assets and liabilities are properly

valued.

e. Presentations and Disclosure: He should check whether the assets, liabilities,income and expenses are presented and disclosed in the Final Accountsproperly, according to the recognized accounting policies and the requirementsof law.

3. Specific Items: The auditor should pay special attention to the following specificitems in the Final Accounts

a. Verify fixed assets, investment physically;

b. Check the addition to and deduction from fixed assets and investments;c. Check the amount of depreciation charged;


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d. Check the accounts of major debtors and creditors and obtain confirmations andstatement of accounts;

e. Verify cash and stocks physically;

f. Check valuation of stocks;

g. Ascertain amount of bad or doubtful debts;

h. Check estimates of contingent liabilities.

4. Overall Checking of Final Accounts (Analytical Review):

a. Compare the amount of each item for the previous year with that of the current year.Investigate the reasons for abnormal variations.

D. BASED ON OBJECT

I. Special Audit:

Central Government has power to order a special audit of the accounts of a company for

a specific period. This is under Section 233A of the companies Act, 1956. Special audit is

ordered without providing an opportunity to the company, where the central government is of

the opinion.

a. When affairs of any company are not managed as per the sound business

principles.

b. When company is being managed in a manner which is likely to causeserious injury or damage to the interest of trade or industry.

c. When financial position of a company is such as to endanger its solvency.

Special audit can be entrusted by the central government to the companys auditor

himself or to any other chartered accountant. Auditors remuneration will be fixed by the

Central Government and pad by the company Auditor submits his report to the central

government. On the basis of his report the Central Government may take adequate actions.

Such auditor has the same rights, duties, powers and liabilities as the statutory auditor of the

company.

Cost Audit

Mana ement Audit

Based on Ob ect

Independent Financial


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The special auditor will have the same powers and duties as provided U/s 227. The

report will include all matters required to be included in an auditors report. The report will also

include statements on any other matter as may be directed by the Central Government.

II. Cost Audit:

It is a type of audit which involves verification of cost records maintained by the

organization. U/s 233(B) of the Companies Act 1956 the Central Government may direct an

audit of cost records by a person who is qualified. Appointment of auditor is done by the board

of directors subject to the approval of the Central Government.

The auditor reports to the government, the copy of the report sent to the

company. Cost audit is prescribed for certain types of industries with a view to achieve the

following objects:

a. to grant the price concession of the company;

b. to fix up selling price;

c. to safeguard interest of customers;

d. to consider the question of protection to be granted to the company;

e. to ascertain the causes of loss suffered by the company.

Scope:Cost audit refers to audit of records relating to utilization of materials, labor and other

items of cost as may be prescribed by the Central Government. Cost audit shall be in addition

to financial auditing conducted U/s 224. The procedure is similar to that of financial audit.

Qualifications:The cost auditor shall be either a cost accountant within the meaning of the cost and

works accountant Act, 1959 or any Chartered Accountant within the meaning of the Chartered

Accountants Act, 1949 or other person possessing prescribed qualifications. A person not

qualified to be appointed as auditor of a company under section 226 cannot act as its cost

auditor.

Appointment:

A cost auditor is to be appointed by the Board of Directors with prior approval of theCentral Government.

III. Management Audit:

Management audit involves examines of the plans, policies, procedure, method and

strategies and evaluates the performance of management with a view to improve

organizational effectiveness. It does not look into the past, present but also in the future.

According to Leslie R. Howard, Management Audit is an investigation of a business from

the highest level downward in order to ascertain whether sound management prevails through

out thus facilitating the most effective relationship with the outside world and the most efficient

organization and smooth running of internal organization.


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Scope:

The scope of management audit is quite comprehensive. It involves critical review of

all aspects and processes of management. It also includes the objectives, the plans, the

organization structure control and any other specific function assigned by management from

time to time. It includes the appraisal of the decisions taken by the top management inachievement of organizational objectives.

It revolves around the following factors/ steps:

a. Identify the objectives of the organization.

b. Break the overall objective into targets and plans.

c. Review the organizational structure.

d. Examine the performance of each functional area.

e. Check that delegated authorities are not exceeded.

f. Audit the integrity of the information system.

g. Assess the efficiency with the resources are utilized.

h. Suggest a realistic course of action on the basis of the examination.

IV. Internal Audit:MEANING

Prof. Meigs: Internal Auditing is a continuous, critical review of financial and other

operating activities by a staff of auditors, functioning as full time salaried employees.

SAP7 issued by the Institute of Chartered Accountants of India (ICAI) defines Internal

Audit as follows: Internal Audit is separate component of Internal Control established to

determine whether other internal Controls are well designed and properly operated.

Guidance Note by ICAI: Internal Audit is an independent appraisal activity within anenterprise for the review of accounting, financial and other operation and controls as a basisfor service to management. It involves a specialized application of the techniques of auditing.Thus

Scope And Objectives:1. Review of Accounting System and Internal Controls: Management is

responsible for establishing a reliable accounting system and internal controls. Management inturn expects the Internal Auditor to review the accounting system and Internal Controls, checkthat they are effective and suggest improvements.

2. Examination of Accounting Controls : Internal Auditor has to review theoperation of Accounting Controls to see that

a. All transactions are duly authorized.

b. All transactions are properly recorded.

c. All transactions are recorded promptly as soon as they occur.d. The accounting policies adopted by the management are implemented.

e. The assets of the concern are safeguarded.


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f. Errors and frauds are prevented and detected.

g. The books of accounts are complete and accurate.

h. The final accounts are reliable and ready in time.

3.Examination of Operational Controls: Internal Auditor must review the working ofthe Operational Controls to see that the management policies in respect of the operation and

administration of the concern are implemented. This ensures that the business is conducted in

an orderly and efficient manner. Thus Internal Auditor should review Quality Control,

Budgetary Controls, Internal Check etc. The Internal Auditor has to ensure that the resources

(assets) of the concern are used efficiently and economically.

4. Physical Verification: Internal Auditor should physically verify the assets of the

concern such as fixed assets, cash, inventory etc.

V. Social Audit

1. Social Audit is a recent development in the field of auditing. It is basedon the modern concept of social responsibility of business. Social audit examines to whatextent the business is discharging its social responsibilities. It examines the contribution of theconcern to the society at large. It reviews and evaluates the performance of the concern in theareas of social welfare and awareness like Contribution to natural economic growth throughexpansion, employment generation etc, welfare of employees e.g. training to employees,employment to handicapped or backward people, provision of education, housing and healthfacilities to employees and their families. Product relations including quantity, quality and priceof product supplied etc.

E. OTHER TYPES

Occasional Audit

Special Audit

Secretarial Audit

Audit in Depth

Cash Audit

Other Types

O erational Audit

Tax Audit

Environmental


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I. Independent Financial Audit

Independent financial audit is conducted for the purpose of ascertaining whether the

balance sheet and profit and loss account of a business give a true and fair view of the

operations and working results of a business respectively. It is conducted by professionally

qualified auditors for clients who may be sole proprietors, partners, various individuals,

members of non-profit organizations and shareholders. Independent financial audit has been

made compulsory for many entities established under respective Acts. The auditor is required

to submit his report to the client which is a useful document for third parties as well.

II. Occasional Audit:

This audit is carried out according to the occasional need of the business of the client. It

is done at the specific desire of the owners of the business where the audit is legally not

compulsory. The auditor will conduct the audit according to the terms and reference. His reportwill mention the terms of reference as per the letter he has received.

III. Secretarial Audit

A company secretary ensures that the working of the company is in

accordance with the provisions of the Companies Act, 1956 and other applicable laws. The

secretarial audit is conducted to ensure that full and adequate compliance to various legal

requirements has been established while implementing the decisions taken by the

management and any inadvertent non-compliance is brought to light and if possible, is set

right.

Duties To Be Discharged By The Company Secretary :-

The whole-time company secretary conducts secretarial audit to discharge

various statutory duties for company Act, 1956 has laid down various statutory duties for

company secretaries such as filing of statutory declaration with the registrar of companies as

to compliance in respect of incorporation, giving notice to the registrar of an increase in share

capital, authentication of balance sheet and profit and loss account, filing of certificate as to

compliance of requirements of Schedule XIII, etc.

Under the listing agreement clause 47(a), every listed company is required to

appoint a company secretary who would act as a compliance officer and would be responsible

for monitoring the share transfer process and act as a liaise with investors and various

authorities such as SEBI, etc.

IV. Audit in Depth:

Taylor and Perry define auditing in depth as it implies the examination of the system

applied within a business entailing the tracing of certain transactions from their origin to their

conclusion investigating at each stage the records created and their appropriate authorization.

It is a method according to which a few selected transactions are subject to a thoroughscrutiny in forming an opinion as regards the accuracy of the data so scrutinized.


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VII. Tax Au dit:

Statutory audits as well as the cost audit are taken up as result of specific provisions

contained in the companies Act, 1956. However, a new concept of tax audit has been evolved

lately under the Income Tax Act, 1961. In India, the Indian Income Tax Act, 1961, provides for

compulsory audit of accounts of certain assesses whose turnover or receipts exceed thespecified limit. The Income Tax Act has provided for rules and regulations regarding tax audit.

The tax audit can be undertaken by the practicing member of the institute of Cost and Works

Accountants of India.

There are no specific rules laid down by the Chartered Accountants Act, 1949. From time

to time, the institute of Chartered Accountants of India issues certain guidelines regarding

conduct of Tax Audit. The objective of such audit is to assist the tax authorities in

determination of correct tax liability. The tax auditor has to report about the transactions which

have an effect on fixation of tax liability.

Compulsory Tax Audit v/s 44AB

Under the above section, tax audit is compulsory for a person carrying on any

business or profession if:

a. In the case of business whose total sales turnover or gross receipts exceedRs.40,00,000 in the previous year, and

b. In the case of a profession, if the gross professional receipts in the previous yearexceed Rs.10,00,000.

c. In the case of an assessee covered under sections 44AD, 44AE, 44BB or 44BBB.

The audit report in prescribes form should be obtained from the auditor and filed with

the Return of Income. The tax auditor cannot accept more than 30 tax audit assignments in a

financial year.

VIII. Environmental Audit:

In recent times, new type of audit has emerged which is known as Environmental Audit.

The objective of such an audit is to examine the effect of the activities of an organization on

environment. Environment audit is a management tool comprising a systematic, periodic and

objective evaluation of how well organization, management and equipment are performing tosafeguard the environment. It is concerned with assessing whether the company policies meet

regulatory requirements as perceived by the management.

Environmental factors play a very important role in evaluation of future performance and

cash flows of companies. Environmental factors affect assets and liabilities of as organization.

The effect of environmental factors can be assessed with the help of Environmental Audit. In

India the Govt. has prescribed Environment Audit Report termed as Environment statement

under the provisions o9f the Environment (Protection) Act, 1986. Every industry has to submit

this statement to the State Pollution Board every year by 30thSeptember.

The environmental audit requires the auditor to have suitable technical qualifications,

knowledge of environmental laws and regulations sand ability to assess the impact of


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environmental factors on financial performance of the company. The environmental audit is

conducted, generally, by small teams numbering three or four persons because a professional

accountant or any one person cannot have varied knowledge required for it.

tupes of audit

Documents