Question

In a short essay form, discuss the similarities and differences between financial statement audits, operational audits, and compliance audits. Give an example of each type. Please explain in detail for each audit because my textbook does not explain it well.

Answer 1

BASIC UNDERSTANDING

FINANCIAL STATEMENT AUDIT - A FINANCIAL STATEMENT AUDIT IS THE EXAMINATION OF AN ENTITY'S FINANCIAL STATEMENTS AND ACCOMPANYING DISCLOSURE BY AN INDEPENDENT AUDITOR.THE RESULT OF THIS EXAMINATION IS A REPORT BY THE AUDITOR ,ATTESTING TO THE FAIRNESS OF PRESENTATION OF THE FINANCIALSTATEMENT AND RELATED DISCLOSURE.

OPERATIONAL AUDIT -OPERATIONAL AUDITS ARE FOR DETERMINING THE OPERATIONAL EFFICIENCY OF A COMPANY OR ORGASNIZATION .AN OPERATIONAL AUDIT MIGHT ASSESS THE ENTIRE ORGANIZATION AS A WHOLE, OR A SINGLE OPRATING UNIT WITHIN THE COMPAN,SUCH AS THE SHIPPING DEPARTMRNT.OPRATIONAL AUDIT EXAMINES SUCH FACTORS AS PURCHASES, SHIPPING AND RECEIVING ACTIVITIES DATA PROCESSING.IN SHORT ,AN OPERASTIONAL AUDIT IS AN EXAMINATION AND EVALUATION OF SPECIFIC ACTIVITIES AND HOW THEY CONTRIBUTE.

COMPLIANCE AUDIT-COMPLIANCE AUDIT ARE USED TO DETERMINE WETHER OR NOT A COMPANY HAS COMPLIED WITH THE VARIOUS LAWS AND REGULATIONS REQUIRED IN THE IUNDUSTRY .THIS TYPE OF AUDIT IS SPECIALLY IMPORTANT IN THE FINANCIAL INDUSTRY,WHERE ACTIVITIES ARE REGULATED PRIMARILY BY THE SECURITIES AND EXCHANGE COMMISSION.A COMNPLIANCE AUDIT GENERLLY RESULTS IN THE COMPLETION OF A REPORT THAT IS PROVIDEDE TO THE APPROPRIATE AGENCY IN CHAREGE OF OVERSEEING THE AGENCY.

SIMILARITIES AND DIFFERENCES-

EACH TYPE OF AUDIT DISCUSSED ABOVE INVOLVES ACCUMULATING AND EVALUATING EVIDENCE ABOUT INFORMATION TO ASCERTAIN ON THE REPORT OF THE DEGREE OF CORRESPONDENCE BETWEEN THE INFORMATION AND ESTABLISHD CRITERIA.THE DIFFERENCE BETWEEN EACH TYPE OF AUDIT ARE THE INFORMATION BEING EXAMINED AND THE CRITERIA USED TO EVALUATE THE INFORMATION.

EXAMPLES

FINANCIAL STATEMENT AUDIT-THE ANNUAL AUDIT OF IBM INCORPORATION,IN WHICH THE EXTERNAL AUDITOR EXAMINES IBM'S FINANCIAL STATEMENT TO DETERMINE THE DEGREE OF CORRESESPONDENCE BETWEEN THOSE FINANCIAL STATEMENTS AND GAAP.

OPERATIONAL AUDIT-AN INTERNAL AUDITORS EVALUATION OF WETHER THE COMPANY 'S COMPUTERIZEDPAYROLL-PROCESSING SYSYTEM IS OPERATING EFFICIENTLY AND EFFECTIVELY.

COMPLIANCE AUDIT- AN IRS AUDITOR 'S EXAMINATION OF AN ENTITY'S FEDERAL TAX RETURN TO DETERMINE THE DEGREE OF COMPLIANCE WITH THE INTERNAL REVENUE CIODE.