Question

Differentiate between the three main types of audits and auditors.

Answer 1

There are three main types of audits: financial, operational and compliance. Financial audits involved a focus on financial controls which are related to reporting. The controls are present in the general ledger or sub ledger systems of a business. The financial statement auditing is the focus for these external auditors. Internal auditors will use the financial statements and also complement the work they perform based on an agreed plan. Operational audits focus on more the review and assessment of the business process by looking at the direct or indirect financial impact to the business like collection of student tuitions or patient account balances. The internal audit will focuses on operational audits but will extend the scope to include accounting procedures which can impact the financial reporting. Compliance auditing reviews the level of compliance with the internal policies of the business or the external regulatory requirements set by the government or the board of accountancy which the business follows.

The primary types of auditors include independent, internal and external (government). Independent auditors are usually CPA’s who are individual practitioners or member of an accounting firm. Internal auditors are employees of the business they audit and are usually involved in the independent evaluation of evidence (internal auditing) within the business as a service to the business. The objectives of the internal auditor is to assist the management of the business in the effective discharge of their responsibilities. External auditors, sometimes government auditors, are employed by local, state and federal agencies. Many of these can be the General Accounting Offices, the Internal Revenue Service of the Defense Contract Audit Agency.