Types Of Audit

Internal audit

The examination of a company's records and reports by its employees. Internal audits are usually intended to prevent fraud and to ensure compliance with board directives and management policies. In contrast, the financial statements presented to stockholders are typically prepared by outside parties to ensure absolute objectivity.

External audit

An examination of a company's records and reports by an outside party, such as a public accountancy practice or audit consortium.

IT Audit

The growing complexity of information systems requires an extremely comprehensive and detailed audit programme. IT Audit has become much more a consultancy function and is sometimes housed within the consultancy practice.

The computer auditor can expect to become involved in a wide variety of assignments. Apart from the audit itself these include:

Design of interrogation programme;
Troubleshooting and providing expert advice to audit teams;
Systems - Security Reviews - establishing the existence of computer based controls;
Systems Strategy - analysing and specifying clients' systems requirements;
Technical and Training - as experts, computer auditors are often involved with both clients and staff;
Systems implementation.

Compliance

There is considerable regulation in the UK, some of which is from EU legislation. Various areas are policed by different bodies, such as the FSA (Financial Services Authority), EPA (Environment Protection Agency), Information Commissioner and others.

Corporate scandals and breakdowns such as the Enron case in 2001 have highlighted the need for stronger compliance regulations for publicly listed companies. The most significant regulation in this context is the Sarbanes-Oxley Act developed by two U.S. congressmen, Senator Paul Sarbanes and Representative Michael Oxley in 2002 which defined significant tighter personal responsibility of corporate top management for the accuracy of reported financial statements. Compliance in the USA generally means compliance with laws and regulations. These laws can have criminal or civil penalties or can be regulations. The definition of what constitutes an effective compliance plan has been elusive. Sarbanes Oxley Hurriedly drafted in 2003 in response to the high-profile corperate collapse o both Enron and World.com. The key to this far-reaching document lies in section 404. Here it is made clear that responsibility for the financial reports and accounts lie with the Chief Executive, and that it will no longer be adequate for the head of the organisation to deny all knowledge of any improper practices implemented by his or her finance director.

Risk Audit

Audit risk is a term that is commonly applied in relation to the audit of the financial statements of an entity. The primary objective of such an audit is to provide an opinion as to whether or not the financial statements present fairly the financial position and results of the entity. Audit risk is the risk of the auditor providing an inappropriate opinion on the financial statements. In other words, it is the risk of the auditor stating the financial statements present fairly the financial position of the entity, when in fact they do not. (Although significantly a lesser risk, audit risk also encompasses the risk of the auditor stating the financial statements do not present fairly the financial position of the entity, when in fact they do.)

Operational Audit

A detailed audit that concentrates on analysis and evaluation of management procedures and the overall performance of an organisation. A operational audit is undertaken to discover weaknesses and to institute improvements within the organisation. Also called management audit, performance audit.

Retail/Stock Audit

Normally a field based non-financial position covering an area with designated branches or outlets of retail stores, auditors work with the store/area managers to conduct stock audits which will include reviews and recommendations to improve productivity and distribution.