Types of Audit

  • Post last modified:20 April 2021
  • Reading time:13 mins read
  • Post category:Finance
Udacity Offer 50 OFF

There are various types of audit. Auditor may choose any audit procedure for conducting audit of financial statements. Audit procedure may vary from enterprise to enterprise according to the nature of business, audit period, etc.

What is Audit?

An audit is independent examination of financial information of any entity, whether profit oriented or not, and irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon.

Types of Audit

  • Statutory/Mandatory Audit
  • Voluntary/Independent Audit
  • Interim Audit
  • Concurrent Audit
  • Continuous Audit
  • Balance Sheet Audit
  • Financial Audit
  • Cost Audit
  • Management Audit

Statutory/Mandatory Audit

The audit which is prescribed by law i.e. governing by statute or by regulations is called a statutory audit. Where scope is defined by law, it can’t be restricted by the appointing authority.

Only a person possessing the prescribed qualification shall conduct the audit. The matters to be covered in the auditor’s report are generally defined by law.

Voluntary/Independent Audit

This audit is purely optional and at the discretion of the governing body. The scope of an audit is defined by the letter of engagement between the auditor and the client. The format of the report is prescribed by the scope of work.

Examples: Individuals, Private trusts, Partnership firms etc. which are not governed by any audit provisions of the act.

Interim Audit

An audit which is conducted between two annual audits is called an interim audit. Such type of audit conducted at a specific date as per client’s requirement.

Example: 30th September, 31st December. Financial statements are prepared for interim audit period. Assets and liabilities are verified for interim balance sheet purposes.

Advantages of Interim audit

  • Immediate detection of errors & frauds: Errors & Frauds, if any, easily detected.

  • Up to date accounts: The accounting staff of the client is motivated to keep the books of accounts up to date.

  • Early final audit: The final audit can be completed in a short span of time.

  • Interim dividend: It helps the company to publish interim financial statements for declaration of interim dividend.

  • Act as a deterrent: Frequent attendance by audit staff deters persons from committing fraud.

  • Staff planning: Staff can be sent regularly by proper planning. Work schedules can be done effectively.

  • Advantages of Interim audit l Immediate detection of errors & frauds: Errors & Frauds, if any, easily detected.

  • Up to date accounts: The accounting staff of the client is motivated to keep the books of accounts up to date.

  • Early final audit: The final audit can be completed in a short span of time.

  • Interim dividend: It helps the company to publish interim financial statements for declaration of interim dividend.

  • Act as a deterrent: Frequent attendance by audit staff deters persons from committing fraud.

  • Staff planning: Staff can be sent regularly by proper planning. Work schedules can be done effectively.

Disadvantages of Interim audit

  • Failure to keep track: Since work is carried out in several instalments, the audit staff may fail to keep track of things. As a result, some of the transactions may escape.

  • Tampering: The staff of the client may alter entries in the books of accounts after checking thereof.

  • Uneconomic: The audit is uneconomic for small size concern as a great deal of time & efforts would be wasted.

  • Missing links: Continuity in work may be lost when work is executed

  • Time-consuming: Since all transactions are verified. A continuous audit will be time-consuming.

  • No guarantee for fraud detection: Complete verification of all transactions in detail, does not guarantee detection of all errors & frauds. Some material misstatements may still exist.

Concurrent Audit

It implies verification of transactions of a year on a continuous basis. The period of verification is primarily determined by the auditor. Financial statements are not prepared. Assets & liabilities are verified only at the time of finalization at the year-end.

Continuous Audit

When the Auditor’s staff is engaged continuously in checking the accounts of the client during the whole year round or when the staff attends audit work at some intervals, it is called a Continuous Audit.

Advantages of continuous audit

  • Immediate errors and frauds detection: Management can exercise stricter control over the accounts in as much as it is able to check sooner the causes of any errors or frauds uncovered by such an audit.

  • Acts as Deterrent: The frequent attendance of the audit staff deters persons from committing fraud.

  • Up to date accounts: The accounting staff of the client is motivated to keep the books of account up to date.

  • Early Final Audit: The final audit can be completed in short span of time.

  • Knowledge of clients’ affairs: The Auditor can obtain a more detailed knowledge of the client’s affairs, which helps the auditor to discharge his duties more efficiently.

  • Detailed Coverage: All aspects of verification are carried out in detail than in the final audit. CHECK YOUR PROGRESS Define interim Audit, its advantages and disadvantages?

Disadvantages of continuous audit

  • Failure to keep track: Since work is carried out in several instalments, the audit staff may fail to keep track of things. As a result, some of the transactions may escape.

  • Tampering: The Client’s staff may alter entries in the books of account, after checking thereof.

  • Uneconomic: The audit is uneconomic for small-sized concerns as a great deal of time and effort would be wasted each time in preparing for the audit.

  • Interruption of work: The presence of audit staff at regular intervals may affect the regular work-flow of the client.

  • Boredom: Routine checking on a continuous basis may become mechanical.

  • Time-consuming: Since all transactions are verified, a continuous audit will be time-consuming.

  • No guarantee for fraud detection: Complete verification of all transactions in detail, does not guarantee detection of all errors and frauds. Some material misstatements may still exist

How will you overcome the disadvantages of Continuous Audit?

Following are some precautions:

  • Stage-wise completion: The work should be completed upto a definite stage during the .course of each visit. This will eliminate the possibility of loose ends.

  • Documentation: Important balances should be noted down at the end of each visit and the same should be compared at the time of the next visit. Proper documentation should be maintained.

  • Surprise visit: The visits should be conducted at irregular intervals. Client staff would not know the exact dates of the proposed visit.

  • Special auditing marks: The client’s staff should be instructed not to alter or correct audited figures. The Auditor should also device a special form of ticks and places the same, against altered figures. The purpose or the significance of such special marks should not be disclosed to the client’s staff.

Balance sheet audit

The Balance Sheet Audit means Auditor reviews the Balance Sheet and works back to the books of original entry and other evidences. In balance sheet audit it is assumed that there is a reliable system of internal check & internal audit.

Much of the vouching, casting and posting and other routine audit is eliminated considering the soundness of internal control system. Where internal controls are considered weak, the Auditor might prefer more elaborate testing procedures to obtain audit assurance.

Auditor performs analytical review of the items in the Financial Statements and investigates the followings:

  • Material deviations from budgeted amounts;
  • Items of unusual and non-recurring nature;
  • Items requiring statutory disclosure.

Need for Balance sheet audit

The need for Balance Sheet Audit by departing away from routine “ticking” of vouchers and “post and vouch” audit arises due to – l Development of Industries. l Adoption of very formal control system by organization. l Growth in size of business. l Increase in number of transactions of homogeneous nature.

Financial Audit

Financial audit means examination of financial statements to express an opinion thereon. This audit is mandatory for all enterprises. It covers all the items which form part of the financial statements. This audit helps to determine the true & fair view of financial statements. Here propriety aspect is not considered in detailed.

Cost Audit

Cost audit means review of decisions & actions of management to analyse performance. This is applicable to those companies specified under law. Cost audit primarily covers the cost aspects of the enterprise.

Management Audit

Review of decisions & actions of management. Propriety & efficiency of decisions & managerial actions is studied. It covers all aspects like organizational objectives, policies, procedures, structure, control & system.


Audit Techniques

It refers to the methods and means adopted by the auditor for collection and evaluation of audit evidence in different auditing situations. Techniques refer to the methods employed for carrying out the audit procedure.

Audit techniques are generally interdependent. A combination of techniques is applied in a particular procedure.

For example:

  • Physical Inspection
  • Confirmation
  • Inquiry
  • Calculations of ratios

Audit techniques may vary from the organization to organization depending upon the nature of business, number of transactions, etc. However it is important to remember that the principles of auditing remain constant.

Leave a Reply