Various types of Audits and their comparison Particulars
1 Definit Definition ion
Financial Audit
involves the examination and verification of financial statements prepared by a company by an outside chartered accounting firm
Cost Audit
involves the verification of cost records and cost accounts
Efficiency Audit
Internal Audit
Management Audit
efficiency audit concerns whether the capital employed is being used efficiently. the main purpose is to ensure that (i) there is optimum utilisation of capital, and (ii) investment is channelised in most profitable lines
in addition to the outside accounting, most large organisations have an internal audit carried out by their internal audit department.
management audit is a comprehensive and constructive review of management methods and performances
Tasks carried 2 out under the audit
assessment of the Statutory audit: review, following: (a) examining and examine and appraise the (i) (i)return on capital, verifying financial cost accounting records, (ii) (ii)capacity utilisation, statements (b) additional information (iii) optimum appraising the required to be maintained for utilisation of men, procudures for specific industries; Nonmachines, and collecting, recording, statutory audit: review, materials, (iv) export and reporting examine and appraise the performance and financial information cost accounting records as import substitution, required by the management (v) liquidity position, (vi) payback period
statutory for all Statutory/ Non- limited companies to 3 undergo financial statutory audit outside Chartered Who carries out Accountant 4 the audit? appointed by the shareholders
cost audit could be statutory or voluntary
not statutory
may be carried out by an cost audit team from outside cost accounting firm within the or an internal cost accountant organisation
assessment of the following: (i) Objectives Audit -setting of objectives, (ii) procedures audit, (iii) system audit, (iv) review, examine, organisation audit, (v) personnel audit, (vi) appraise, and recommend the following operations audit, (vii) : (i) internal controls, (ii) commercial audit purchases, imports, compliance with exports, (viii) marketing established policies, (iii) extent to which company audit, (ix) accounts and financial audit, (x) assets are safeguarded, performance audit (iv) improvement in operations
not statutory
not statutory
internal audit team from within the organisation
management audit team from within the organisation
Non-statutory cost audit is carried out to help the management in the accounts have to understanding the costs in be in line with the great detail and thereby help Any specific accounting standards in framing policies for cost cost points for 5 as prescribed by the reduction or pricing of the carrying out the Institute of Acartered products. Statutory cost audit audit Accountants of India is a form of statutory (ICAI) compliance; this also often helps to compare the company's costs with that of the industry.
Enhances the credibility of financial How does the reports, increases audit benefit the 6 relaibility and company or usefulness for making others? economic decisions by invetors, creditors, analysts. prepared by the company
Benefits are mainly to the management, which indirectly get translated into benefits for the employees, investors, creditors and analysts. However, the cost audit details are not available to employees, investors, creditors, analysts, as in the case of financial audit
internal aiudit brings out many irregularities that happen within the organisation, which may not come to be noticed Efficiency audit forms by outsiders. The internal an important part of auditor, who is an management control employee of the company systems with many years of experience in the set-up, is in a better position to identify any malpractices going on in the organisation.
Benefits are mainly to the management, which indirectly get translated into benefits for the employees, investors, creditors and analysts.
management audit forms an important part of management control systems
management audit does a comprehensive assessment internal audit helps the of the organisation and company in cleansing any helps the management to malpractices or any identify and rectify any internal deficiencies in shortcomings in the overall the current operations management of the company
Any other 7 points?
Alongwith the financial statements of the company is appended the Auditor's Report, which quailifies any irregularities and mentions them in the 'Notes to Accounts'.
8 Any failures?
Not likely since the nonstatutory cost audit is carried out at the instance of the Yes. Glaring failures management. Statutory audit are Enron (auditor also does not receive the kind Arthur Andersen), of attention which the Satyam (auditor PwC) financial audit receive. Hence, failures, if any, do not receive the attention as in financial audits.
cost audit is mainly a preventive measure, and acts as a guide to management policy decision (while financial audit indicates the position of the accounts as they are)
Efficiency audit forms an important part of management control systems
internal audit brings out many internal issues of the organisation, and is an ongoing process of improvising the internal systems in a company
management audit forms an important part of management control systems
not applicable since efficiency audit is carried out at the behest of the management to help them in checking out the efficiency of utilisation of capital
not applicable since internal audit is carried out at the behest of the management to help them in checking out malpractices within the orgaisation.
not applicable since management audit is carried out at the behest of the management to help them in making a comprehensive assessment of the management
