Page 12 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes 3. Third Party Audit: An audit of an organization performed by a body that is independent
of the organization being audited, e.g. Certification Body (Registrar) or Regulatory Body.
There are following types of audit:

Statutory audit: This is the audit governed by statute such as the Company’s Act.
Non-statutory audit: This are the audit not specially required by law this scope of the audit will
be outline by the contract between the auditor and the clients.
External audit: External audit is that is critical review of the representation of the published
financial statements it is compulsory for all company’s which are listed in the stock exchange.

Internal Audit: This is a review of operation carried out sometimes continuously specially
assigned staff with in the client business.

Final Audit: Final audit is commenced when all account has been closed and final accounts are
been prepared.
Social Audit: Social audit is performed to know the corporate social responsibility.

System audit: A quality audit conducted on a QMS would be called a system audit. It can be
described as a documented activity performed to verify, by examination and evaluation of
objective evidence, that applicable elements of the QMS are appropriate and effective.
Adequacy audit is a review to verify the sufficiency of documentation for defining work and of
records as evidence of satisfactory work completion.
Product audit is an examination of a particular product (i.e. hardware, processed material,
software or service) to evaluate whether it conforms to requirements (i.e. specifications,
performance standards).

Process audit is performed to verify that processes are working established limits. A process
quality audit examines an activity to verify that the inputs, actions, and outputs are in accordance
with defined requirements.
Compliance audit is an audit to ensure you’re in compliance with relevant specifications, contract,
or regulation.

1.7 Difference between Internal Audit and Statutory Audit

Following are the main points of difference between internal audit and statutory audit:

1. Appointment: The management of the organization makes the appointment of an internal
auditor. The statutory auditor is appointed by different authorities. First statutory auditors
are appointed by the shareholders in the annual general meeting.
2. Qualification: Qualifications of the statutory auditor are prescribed in the Companies
Act, 1956. Essentially a person should be a practicing Chartered Accountant to be appointed
as a statutory auditor. There is no fixed qualification for the position of an internal auditor.

3. Objects: The main object of the statutory audit is to form an opinion on the financial
statement of the organization auditor has to state that whether the financial statements are
showing the true and fair view of the affairs of the organization or not. The main object of
the internal audit is to detect and prevent the errors and frauds.
4. Scope: The scope of the statutory audit is fixed by the Companies Act, 1956. It cannot be
changed by mutual consent between the auditor and the management of the audited

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