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Various types of Audits and their comparison Particulars Financial Audit Cost Audit Efficiency Audit Internal Audit Management Audit

1 Definition

involves the examination and verification of financial statements prepared by a company by an outside chartered accounting firm

efficiency audit concerns whether the capital employed is being used efficiently. involves the verification of the main purpose is cost records and cost to ensure that accounts (i) there is optimum utilisation of capital, and (ii) investment is channelised in most profitable lines

in addition to the outside accounting, most large organisations have an internal audit carried out by their internal audit department.

management audit is a comprehensive and constructive review of management methods and performances

(a) examining and verifying financial statements (b) Tasks carried appraising the 2 out under the procudures for audit collecting, recording, and reporting financial information

Statutory audit: review, examine and appraise the (i) cost accounting records, (ii) additional information required to be maintained for specific industries; Nonstatutory audit: review, examine and appraise the cost accounting records as required by the management

assessment of the following: (i)return on capital, (ii)capacity utilisation, (iii) optimum utilisation of men, machines, and materials, (iv) export performance and import substitution, (v) liquidity position, (vi) payback period

assessment of the following: (i) Objectives Audit -setting of objectives, (ii) review, examine, procedures audit, (iii) appraise, and system audit, (iv) recommend the organisation audit, (v) following : (i) internal personnel audit, (vi) controls, (ii) operations audit, (vii) compliance with commercial audit established policies, (iii) purchases, imports, extent to which exports, (viii) marketing company assets are audit, (ix) accounts and safeguarded, (iv) financial audit, (x) improvement in performance audit operations

statutory for all Statutory/ Nonlimited companies statutory to undergo financial audit outside Chartered Accountant Who carries 4 out the audit? appointed by the shareholders 3

cost audit could be statutory or voluntary may be carried out by an outside cost accounting firm or an internal cost accountant

not statutory

not statutory

not statutory

cost audit team from within the organisation

internal audit team from within the organisation

management audit team from within the organisation

Any specific points for 5 carrying out the audit

the accounts have to be in line with the accounting standards as prescribed by the Institute of chartered Accountants of India (ICAI)

Non-statutory cost audit is carried out to help the management in understanding the costs in great detail and thereby help in framing policies for cost reduction or pricing of the products. Statutory cost audit is a form of statutory compliance; this also often helps to compare the company's costs with that of the industry.

internal aiudit brings out many irregularities that happen within the organisation, which may not come to be Efficiency audit noticed by outsiders. forms an important The internal auditor, part of who is an employee of management the company with control systems many years of experience in the setup, is in a better position to identify any malpractices going on in the organisation.

management audit forms an important part of management control systems

Benefits are mainly to the management, which Enhances the indirectly get translated credibility of into benefits for the How does the financial reports, employees, investors, audit benefit increases relaibility 6 creditors and analysts. the company and usefulness for However, the cost audit or others? making economic details are not available to decisions by employees, investors, invetors, creditors, creditors, analysts, as in analysts. prepared the case of financial audit by the company

Benefits are mainly to the management, which indirectly get translated into benefits for the employees, investors, creditors and analysts.

internal audit helps the company in cleansing any malpractices or any internal deficiencies in the current operations

management audit does a comprehensive assessment of the organisation and helps the management to identify and rectify any shortcomings in the overall management of the company

Any other 7 points?

Alongwith the financial statements of the company is appended the Auditor's Report, which quailifies any irregularities and mentions them in the 'Notes to Accounts'.

cost audit is mainly a preventive measure, and acts as a guide to management policy decision (while financial audit indicates the position of the accounts as they are)

internal audit brings out many internal Efficiency audit issues of the forms an important organisation, and is an part of ongoing process of management improvising the control systems internal systems in a company

management audit forms an important part of management control systems

8 Any failures?

Not likely since the nonstatutory cost audit is carried out at the instance Yes. Glaring failures of the management. are Enron (auditor Statutory audit also does Arthur Andersen), not receive the kind of Satyam (auditor attention which the PwC) financial audit receive. Hence, failures, if any, do not receive the attention as in financial audits.

not applicable since efficiency audit is carried out at the behest of the management to help them in checking out the efficiency of utilisation of capital

not applicable since internal audit is carried out at the behest of the management to help them in checking out malpractices within the orgaisation.

not applicable since management audit is carried out at the behest of the management to help them in making a comprehensive assessment of the management