Abstract: Auditing plays an important role in all types of information systems and especially in financial information systems. Its role is critical in fraud prevention, detection or finding false positive. We will briefly talk about different types of auditing.
Audit is an appraisal activity undertaken by an independent practitioner (e.g. an external auditor) to provide assurance to a principal (e.g. shareholders) over a subject matter (e.g. financial statements) which is the primary responsibility of another person (e.g. directors) against a given criteria or framework (e.g. IFRS and GAAP). Auditing is a highly complex process, and the importance of auditors as a vital link in the financial reporting chain has never been more important nor their role as trusted advisors more valued. Below we will review different types of auditing:
External audit: Also known as financial audit and statutory audit, involves the examination of the truth and fairness of the financial statements of an entity by an external auditor who is independent of the organization in accordance with a reporting framework such as the IFRS. Company law in most jurisdictions requires external audit on annual basis for companies above a certain size.
Internal audit: also referred as operational audit, is a voluntary appraisal activity undertaken by an organization to provide assurance over the effectiveness of internal controls, risk management and governance to facilitate the achievement of organizational objectives.
Information system audit: involves the assessment of the controls relevant to the IT infrastructure within an organization. Information system audits may be performed as part of the internal control assessment during internal or external audit.
Compliance audit: In many countries, companies are required to conduct specific audit engagements other than the statutory audit to comply with the requirements of particular laws and regulations.
Investigative audit: This is an audit that takes place as a result of a report of unusual or suspicious activity on the part of an individual or a department. It is usually focused on specific aspects of the work of a department or individual.
Follow up audit: These are audits conducted approximately six months after an internal or external audit report has been issued. They are designed to evaluate corrective action that has been taken on the audit issues reported in the original report. When these follow-up audits are done on external auditors’ reports, the results of the follow-up may be reported to those external auditors.
Conclusion: There are even more types of auditing than what we have discussed above such as process audit, integrated audit, environmental and social audit and value for money audit. All types of audits, however, looking for a simple goal; preventing and detecting fraud in the system. Although more complicated auditing systems means we would face more complex fraud to detect.
References:
https://daf.csulb.edu/offices/univ_svcs/internalauditing/audits.html
https://finance.columbia.edu/content/types-audits
https://www2.deloitte.com/global/en/pages/audit/solutions/what-is-audit.html
https://daf.csulb.edu/offices/univ_svcs/internalauditing/audits.html