Different Types of Audits| How do Internal Audits Help your Business
An Introduction to the Different Types of Audits| How do Internal Audits Help your Business
In
layman’s language, auditing is an independent inspection of an organization’s
books, accounts, etc. to routinely monitor the various functional and
procedural metrics of the organization. Audits help various businesses discover
root problems in the company and increase efficiency.
In
the financial world, there are many certified accounting practitioners and
professional companies that provide various Audit and Assurance Services to businesses. Under Section 44AA and
Rule 6F of the Income Tax Act, it is mentioned that businesses need to maintain
accounting books for various Income Tax purposes if their gross receipts exceed
Rs. 1,50,000/- for the existing profession over 3 preceding years. The
requirement of compulsory Audit for companies in India might occur when the total sales, turnover or gross
receipts for a business exceeds R. 1 Crore. For a professional, audit of the
accounts by a Chartered Accountant is mandatory if the gross receipts exceed
Rs. 50 Lakh.
The
different types of audit that a business could possibly face are:
● Financial Audit - It provides reasonable assurance
to the directors, managers, investors, and regulators. An independent
evaluation of the business’s financial statements is done to see whether the
financial statements provided by the organization are in compliance with the
specified criteria or not. Financial Statement Audit increases business quality
by identifying the key areas in the business where management can be improved.
For Indian businesses operating from countries like Singapore, there is an
Indian based Audit firm in Singapore
that may help you in the face of various audits and provide important Audit and Assurance Services for your
business. The financial audit also helps businesses develop a consistent level
of financial reporting. These reports and financial statements help in future
decision making.
● Compliance Audits - To determine whether or not a
business is complying with the various mandatory regulations and guidelines
drawn by the authorities, a compliance audit is needed. A compliance audit
evaluates security policies and risk management processes while reviewing the
business’s practices and protocols. The audit report also helps discover any
unintentional weaknesses in the program. As the rules and regulations are
changing more often, it becomes difficult for the businesses to keep up with
the new guidelines, thereby causing the compliance program to be weakened.
● Operational Audits - A systematic review and
examination of various organizational activities refer to operational audits.
The audit may be done internally or externally by a recognized entity. The main
focus of the audit is to maintain efficiency and improve productivity. It also
helps the management in discovering the processes that are causing a waste of
resources and correcting such deficiencies. While it takes a longer period of
time to complete and costs money, an operational audit helps in obtaining a
realistic opinion, better control of various key functions, and saving money in
the long-run.
Apart
from the basic audits, a business can also hire a consultancy firm for annual
internal auditing. An internal audit, unlike an external audit, is not
mandatory. But internal Audit for companies in India helps them evaluate the organization’s internal controls.
It helps in discovering any lapse in compliance with the set regulations and
solving the problem before it is picked up by an external auditor. It also
ensures that financial reports of the business are maintained in a timely
manner. The main objective of an internal audit is to review the business’s
routine activities and processes and provide solutions to any problems that are
uncovered. The scope of an internal audit is decided by the organization’s
management and is conducted either by the employees from the audit department
or by outsider entities that offer various Audit and Assurance services.
It
is generally advised to hire a consultancy firm, even if you want an annual
internal audit of the organization because, for a clear and trustworthy report,
it is necessary that the internal audit works independent from the management,
and reports directly to the higher authorities. An internal audit is a constant
activity that helps improve the functions of the business. The report helps the
management in identifying any defects or loopholes in the report before it
catches the attention of an external auditor.
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