Let’s learn about the purpose of auditing. The overall purpose of an audit function is to provide for verification of records, processes, or functions in a sufficiently independent manner from the institution or subject being audited in order to add its value and improve its operations. Specifically, its objectives are:
- To independently identify information this is essential to develop an overall picture of the institution/local authority.
- To identify any weaknesses or administrative flows which otherwise would not be identified due to unwillingness or inability by insiders of the institutions.
- To identify strengths and weaknesses of the administrative structures in order to inform decisions on overall strengthening of the institution.
- To provide baselines on which reforms can be assessed.
- To provide the government (other governing bodies) and general public with credible information that result in public faith or trust of the institution and/or pressure for any reforms to address problems identified
Types of Auditing
(i) Statutory Audit
Statutory audit can be defined as audit which is compulsory as per the acts, laws and provisions of the organization. The appointment of the auditors, qualification, disqualifications remuneration, rights, liabilities, etc. are all mentioned in the relevant mother act of the organization. The companies or undertakings are compulsorily required to conduct their statutory audit as it is not optional in nature.
(ii) Tax Audit
Tax audit is the type of auditing which is conducted as per the provisions of Income Tax act. The main sections under which tax audit is required are: sec 44AB, 44AD, 801 A, 801AA etc.
(iii) Private audit
Private audit is the one which is not mandatory by law. Hence, it is known as private audit although there is no binding but it is opted by many small trades and individuals. The entities that practice private audit are Sole trader, Partnership firms, Individuals and institutions.
(iv) Government Audit
A separate department in the name of account and Audit Department is maintained by the government for performing the auditing of its different departments and offices. This department (Accounts and Audit Department) is headed by the Comptroller and Auditor General of India who is assisted by different officials at various levels.
(v) Internal Audit
Internal audit is aimed to add value and improve organizations operations being directed by the management. The Institute of Internal Auditors defines internal auditing as an independent appraisal activity within an organization for reviewing the accounting, financial and other operations as a basis for protective and constructive service to the management. It is a type of control which functions by measuring and evaluating the effectiveness of other types of control. It deals primarily with accounting and financial matters but it may also properly deal with matters of operating nature.
