Types of Audits:

Overview Types of Audits:

Audit is an art of systematic and independence review and

investigation on Financial Statements, Management Accounts,
Management Reports, Accounting Records, Operational Reports,
Revenues Reports, and Expenses Reports etc. The result of
reviewing and investigation will be reported to shareholders and
others key internal stakeholders of the entity.
Audit reports sometime submit to others stakeholders like
government, banks, creditors or public. Audit is classified into
many different types and level of assurance according to the
objectives, scopes, purposes and the procedures of how auditing
is performed.

The execution of an financial statements auditing is normally in

accordance with International Standards on Auditing (ISA) as well
as others local auditing standards. There are many types of audit
including financial audit, operational audit, statutory
audit, compliance audit and so on.
In this article, we will explain the 14 types of audits that being
perform in the current audit industry or practices.
Here are the list of 14 Types of Audits and Level of Assurance:
#1: External Audit

External audit is type of audit service that audit firm provides

Assurance Service, Consultant Service, Tax Service, Legal
Service, Financial Advisory, and Risk Management Advisory. The
best example of external auditing are the services that providing
by these big four audit firm including KPMG, PWC, EY and
Deloitte.
External auditors are normally referring to audit staffs who are
working in audit firms. These kind of firms are sometime called
CPA firms as they required by law to hold CPA qualification on
order to be able to run audit firm and issue the audit reports.
This type of audit required to maintain professional code of ethic
and strictly follow International Standards on Auditing and/or local
standards as required by local law.
The firms are working independently from auditing clients that
they are auditing and if the conflict of interest is occurred, proper
procedures need to take action to minimize the conflicts. The form
should consider withdraw from audit engagement if the
impairment could not minimize to the acceptable level.
Noted: Some external audit firms are also offering internal audit
services. The popular services that offer by external audit firms
are audit on financial statements, tax consultant, and advisory
services.
#2: Internal Audit

Internal Auditing is an independence, and objectivity consulting

service which is design to add value to the business and improve
entity’s operation. It provides the systematic and discipline
approach on evaluating and assessing the risks management,
internal control and corporate governance.
Scope of internal audit is generally determine by audit committee,
board of directors or directors that have equivalence
authorization. And if there is no audit committee and board of
directors, internal audit normally report to owner of the company.
Internal audit activities is normally covered internal control
reviewing, operational reviewing, fraud investigation, compliant
reviewing, and others special tasks that assigned from audit
committee or BOD.
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#3: Forensic Audit

Forensic audit is normally performed by forensic accountant who

have the skill in both accounting and investigation. Forensic
Accounting is the type of engagement that undertaking the
Financial Investigation in response to a particular subject matter,
where the findings of the investigation normally be used as
evidence in court.
The investigation is covering numbers of areas include fraud,
crime, insurance claims as well as dispute among shareholders.
Forensic audit is also need to have proper plan, procedure and
report like others audit engagement.
Forensic audit also need to for follow ethical guideline like an
audit of financial statements. This kind of engagement is not so
popular as an audit of financial statements or statutory auditing.
#4: Statutory Audit
Statutory audit is referring to an audit of financial statements for
specific type of entities that required by law or local authority. For
example, all banking sectors required their financial statements to
be audited by qualified audit firms that approved by their central
bank.
Statutory audit might be difference from financial statements
auditing as financial audit is referring to audit of all types of
entity’s financial statements including both meet or not meet the
government’s requirement.
However, statutory audit refer to only auditing of entity’s financial
statements that required by local law. The statutory audit is
normally performed by external audit firms and audit report will be
issued by auditor and submit to government body by entity. The
best example of the firm that offering statutory auditing are
KPMG, PWC, EY, …. ect.
The common criterias set by law that required entities to have
their financial statements auditing by qualified audit firm are
amount annual turnover, value of assets, and number of staffs.
Some countries may requires company in specific industries like
bank, mineral, and others based on their decision to have those
company’s financial statements audited.
Companies that listed in the stock exchange are generally
required and enforce by stock exchange authority to have
qualified audit form audited their financial statements.

#5: Financial Audit

Financial audit refer to audit of entity’s financial statements by an

independence auditor where audit opinion will be provided on
those financial statements. Financial audit normal perform by
external audit firm who hold CPA. Financial audit normally
perform annually and at the end of the accounting period. This
type of audit is also known as financial statements auditing.
But, sometime as require management, bank, security exchange,
regulation, or els, the financial audit is also performing on
quarterly as well. Most of the entity prepare its financial
statements based on IFRS, and some entity’s financial
statements are prepared based on local GAAP.
For example, the entity register in US, their financial statements
are prepared based on US GAAP. If the financial statements are
prepared based on IFRS, then financial audit need to be audit
against IFRS.
However, if the financial statements are prepared based local
GAAP, then audit need to be performed against those local
GAAP. The audit standards that use by auditor to conduct
financial audit need to adopt international standards and
requirement of local law.
Some country require audit firm to follow its audit standards while
some others countries have adopted the international standards
and transform it to be locally.
#6: Tax Audit

Tax audit is type of audit that performing by government tax

department or tax authority. Tax audit could be performed as the
result of in-compliant found by government agency or the
schedule set by government tax department.

Entity need not to invite or engage with tax authority to come to

perform tax audit. They will come by themselves. To minimize the
penalty as the result of tax audit, entity is recommended to follow
all the requirement set by tax law and for those areas that they
are not sure, entity should engagement with tax consulting firm for
advising.
#7: Information System Audit or Information
Technology Audit (IT Audit)

Information system audit is sometime called IT audit. This type of

audit assess and check the reliability of security system,
information security structure, and integrity of system.
Sometime, financial auditing also require to has IT auditing as
now technology is increasing and most of client’s financial reports
are recording by complex accounting software. Audit approach
also changed due to the changing of management’s approach in
recording and reporting their entity’s financial information.
Normally, before relying on information system (software) that use
for producing financial statements, auditor required to have IT
audit team to test and review those information system first.
This kind of audit also offer and request separately from financial
audit. As you can may know, most of the big firms have this kind
of services. They are not only provide IT audit, but also offering
consultant on the information system areas.
#8: Compliance Audit

Compliance audit is type of audit that check against internal

policies and procedures as well as law and regulation. Law and
regulation here we mean the government’s law where the
business is operating.
For example, in the banking industry, there are many kind of
regulation required bankers to follow and complying with. Most of
the central banks required commercial banks to set up the
complaint review (assessment) or compliance audit to make sure
that they are complying those law and regulation set.
Entity may also assign its internal audit function to review whether
entity’s internal policies and procedures are complying and
effectively follow.
Compliance audit is part of the system that use by entity’s
management to enforce the effectiveness of implementation of
government’s law and regulation, and entity’s internal policies and
procedures.
#9: Value For Money Audit

Value for money audit refer to audit activities that perform in

assessing and evaluating three main difference factors: Economy,
Efficiency, and Effectiveness.

Economy, auditor assess and evaluate whether the resources

that entity purchases are at the low cost with acceptable quality
where efficiency audit, auditor check whether resources that entity
use have better conversion ratio.
Effectiveness by the way look at the big picture of objective
whether entity using the resources meet it objective or not.
Auditor might review entity’s purchasing system to assess and
evaluate whether it is helping entity to purchase materials or
services at the low costs or not.
#10: Review Financial Statements

Review Financial Statements is type of negative engagement

where auditors are engaging to review the financial statements of
entity. At the end of reviewing, audit are not going to express
whether financial statements are true and fair view and free from
material.
But, auditor will issue the opinion to say that there is nothings
come to their attention that financial statements are not prepare
true and fair view and free from material.

Related article Account payable confirmation

This kind of service is normally required when entity borrow

money from the bank. And the banks, as part of their policy
require entity to provide financial statements that reviewed by
external auditor.
#11: Agreed Up on Procedures (AUP)

Agreed up on procedure is type of negative engagement

where auditors perform their review on the procedures that
agreed with client. This type of engagement is called limited
assurance.
Even though the procedures are setted by client, but auditors will
also need to make sure that the firm have enough resources to
perform the job and fee are not low-balling.
Auditors will also need to make sure that there is no conflict of
interest between audit team and client management team. If the
auditor found that there is conflict of interest, the safe guide need
to check and introduce to reduce the conflict.
#12: Integrated Audit

Integrate audit is happen when there are two different areas of

audit require. For example, there is financial audit along with
social audit or there are some areas need to be confirmed with
financial audit.
For example, the NGO require their financial statements to be
audited along with technical areas that those NGO spending the
money for.
For example, NGO is working on public health and most of the
money spend are related to the public health. Beside the
expenses reports that present the expenses that NGO paid for
and need to be audited by financial auditor, there are number of
technical reports like health reports which need to be verified by
technical auditors that have experienced in assessing health
report.
This is call integrated audit. Integrated audit also happen when
the entity operate in many different countries and the financial
statements are audit by different audit firms.
#13: Special Audit

Special audit is type of audit assignment that normally done by

internal auditor. This is happened when there is the problem/case
occurred in the organization like fraud, business case or others
special case.
For example, there is fraud occurred in the payroll department
and this concern raise to audit committee or board of director or
sometime there is the request from CEO to have special audit on
this areas. Special audit is a bit different from forensic audit as
special audit done by internal staff of entity.
#14: Operational audit
Operational audit is types of audit services that the review is
mainly focus on the key processes, procedures, system, as well
as internal control which main objective is to improve the
productivity, as well as efficiency and effectiveness of operation.
Operation audit is also targeted the leak of key control and
processes that cause waste of resources and then recommend
for improvement.
Operational audit is the part of internal audit and their main aim is
to add value to the business their professional services.
Systematic and highly discipline is also the part that help to make
sure the operational audit add value to the organization.