Classification of Audit - Types of Company Audit, Auditing & Secretarial practice | Auditing and Secretarial Practice - B Com PDF Download

Classification of audit or types of audit

Audit can be classified on different types:

1. Classification of Audit on the basis of Organization structure.
2. Classification of audit on the basis of Degree of independence of the auditor
3. Classification of Audit on the basis of method or approach to audit work or on the basis of extent of work to be performed or on the basis of conduct of audit.
4. Classification of audit on the basis specific objectives

Classification on the basis of organization or organization structure : - On the basis of organization structure, audit may be classified into three types. They are: 

1. Statutory audit
2. Government audit
3. Private Audit

Statutory Audit: - Statutory audit refers to the audit of accounts of a business enterprises carried out compulsorily under the provisions of a statute or law. It is is the audit carried out compulsorily under any statute any law.

Features of statutory audit are:

1. Statutory audit is compulsory under law.

2. Statutory audit is required to be conducted by a qualified auditor.

3. In the case of Statutory audit, the rights, duties and liabilities of the auditor are governed by the statute or law applicable to the undertaking.

4. Statutory audit is an independent audit.

5. Statutory audit is an external audit.

6. Statutory audit must be a complete or full audit. It cannot be partial. 

Statutory audit is carried out in a number of Organizations, such as

1. Joint stock Companies governed by the Companies Act of 1956.
2. Banking companies governed by the Banking Regulation Act of 1949.
3. Insurance companies governed by the Insurance Act of 1938.
4. Electricity supply companies governed by the electricity supply Act of 1948.
5. Co – operative societies registered under the Co –operative Societies Act.
6. Public and charitable trusts registered under Religious and Endowment Acts

2. Government audit: - Government audit refers to the audit of accounts of Government departments and offices, Government companies and statutory or public corporations.

The features of government audit are

1. Government audit is prescribed for by law.
2. It is conducted either by the comptroller and Auditor General of India and his staff or professional chartered accountant approved by the Comptroller and Auditor General of India.
3. It is internal audit.
4. A government audit is a continuous audit. 

Objectives of Government audit 

1. To ensure that all payment has been sanctioned by the competent authority.
2. To ensure that every payments is made as per the rules and regulations.
3. To see that the payments have been made to the right persons.
4. To ensure that the expenditure is not excessive.
5. To see that payments are properly classified as capital and revenue.
6. To verify the existence of stocks and stores.
7. To ensure that a proper system of stock taking has been adopted.

Government audit may be classified into three types. They are:

1. Audit of government departments and offices.
2. Audit of Government Companies.
3. Audit of Statutory Corporations registered as statutory corporations.

3. Private audit or Voluntary audit : - Where an audit is not compulsory under any statute, but is undertaken by the owners voluntarily to get the benefit of audit, the audit is called private audit. In other words , private audit refers to the audit of accounts of private enterprises such as a sole trading concerns, partnership firms and other individuals and institutions.

Advantages of private audit

1. Audit assures to the owners that the accounts of the business are properly maintained and there are no irregularities.
2. It provides a moral check on the employees.
3. It helps the owners of the business to know the real profitability and the state of affairs of their business.
4. Audited accounts serve as a basis for assessment of tax liability.
5. Audited accounts facilitate the process of raising loans from banks and other financial institutions.
6. Audited accounts help in the settlement of dispute and claims between the partners of a firm.