“ Audits and their types ”
As the owner of a small or large business, you should conduct regular audits to make sure your records are accurate. Even though many business owners dislike audits, audits can be beneficial to your company.
During an audit, somebody independent of an organization examines the financial statement of the organization – as shown in the annual report. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting policies and other explanatory notes.
Types of Audits
Finance audits are the most popular audit type, followed by operational and strategic audits, as well as the emerging field of IT (Information Technology) audits. Further, audits have now become so routine and compulsory in organizations worldwide that they spend quite a lot of time having both their internal and external auditors check their books of account and processes.
1.Internal Audits
Usually, internal audits are conducted by employees or stakeholders within organizations to evaluate and assess whether or not they follow the internal procedures, norms, rules, and regulations, along with determining whether they are complying with regulations.
It is true that internal audits are often the first checkpoint for determining whether an organization’s books of accounts, operational processes, and IT infrastructure are in compliance with both its internal objectives and strategic imperatives.
2.External Audits
Independent and third-party audits are conducted by agencies and companies dedicated to assessing and evaluating an organization’s compliance with regulatory requirements.
In addition, some organizations hire external auditors to “hold a mirror to themselves,” in the sense that they can identify deficiencies and irregularities that are otherwise not apparent to the senior leadership and management throughout the course of conducting everyday operations.
3.Financial Audits
As mentioned earlier, financial audits are the most common form of audits for various reasons including the fact that businesses exist to make money and return profits and generate wealth for their shareholders. This means that investors and other stakeholders must know whether the businesses are being run properly so that their capital is safe and generating the stated returns.
Moreover, financial audits are also the most common forms of audits since any discrepancies in the books of accounts reflects the mismanagement of the companies in addition to finance affecting almost all operational and strategic areas of the companies’ and their businesses.
In addition, financial audits are also the first point of evaluation as to whether the companies are stating the truth and whether they are hiding or covering up some aspect that can be uncovered and revealed in a forensic audit.
4.Strategic, Operational, and IT Audits
IT audits are also being sought in order to assess and evaluate the readiness of the organization’s IT infrastructure, systems, and processes to meet stated goals and objectives as well as to withstand IT risks and security breaches. With the increasing nature, types, and varieties of IT risks, as well as the complexity of IT infrastructure, IT audits are becoming as common as financial or operational audits because internal and external stakeholders need to know whether the organization’s IT infrastructure is capable of meeting its stated goals and objectives.
Hard work is not an option, It’s a Necessity!