Question

. What is the purpose of audits?

Answer 1

The purpose of an audit is for an independent third party to examine the financial statementsof an entity. This examination is an objective evaluation of the statements, which results in an audit opinion regarding whether the statements have been presented fairly and in accordance with the applicable financial reporting framework (such as GAAP or IFRS). This opinion greatly enhances the credibility of the financial statements with users, such as lenders, creditors, and investors. Based on this opinion, users of the financial statements are more likely to provide credit and funding to a business, possibly resulting in a reduced cost of capital for the entity.

Purpose of different types of audit are-

1. External Auditing

• Gives confidence in the integrity of corporate reporting for the benefit of stakeholders and society as a whole, by providing an external and objective view on the reports given by management.

2)Internal Auditing- An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.

• Objective is to assist management and staff in the effective discharge of their duties.

Functions include

Examining, evaluating and monitoring the adequacy and effectiveness of the accounting and internal control systems.

Providing analyses, appraisals and recommendations concerning the activities reviewed.

3)Value for Money Audit- An investigation into whether or not the use of resources is economic, efficient and effective.

• To identify and recommend ways in which the return for resources employed may be maximised.

4)Environmental Auditing -A performance evaluation which aims to help safeguard the environment.

• Facilitates management control of environmental practices.

Assesses the degree of compliance with environmental legislation, external regulations and company policies.

5)Public Sector Auditing- National and local government, agencies, commissions, etc

• Scope and objectives are affected by interests and requirements of third party organizations. Specific requirements, relevant regulations, ordinances or ministerial directives may affect the audit mandate.