These objectives aren’t mutually exclusive. An entity may request or require a performance audit to evaluate any of the following objectives: Performance audits cover a wide variety of assessments. Form an opinion on the financial statements or determine that an opinion can’t be formedĪccording to the AICPA, these audits are “typically appropriate and often required when seeking high levels of financing or outside investors, or when selling a business.” The report can help other businesses, investors, stakeholders, etc., make informed decisions about the company.Įxample: If a small business holds a loan or line of credit with a bank, the bank may require the business to undergo a financial statement audit.Obtain sufficient audit evidence about whether material misstatements exist.Identify and assess risks of material misstatement, whether due to fraud or error.Auditors are required to accomplish three things: Next, learn about specific types of audits that can be performed internally, externally, or both.įinancial statement audits involve independent auditors who will report on whether a company’s financial statements align with the applicable financial reporting standards. Publicly traded companies and corporations that sell their shares to the public are required to have an external auditor audit their financial statements. This gives shareholders and external stakeholders more confidence in the audit process and report.Įxample: A manufacturer of car parts is a publicly-traded company. While external audits may vary in what they audit (financial statements, usage of federal funds, etc.), the main benefit is the independence and objectivity of the audit team. Once the audit is complete, a report is distributed to shareholders and stakeholders outside of the organization. Internal audit committees should be prepared to share information gathered from their audit procedures with the external auditors.Ī third party – such as an independent CPA firm – conducts external audits. If your business undergoes an external and internal audit, the external audit team will communicate with your internal audit team throughout the auditing process. An internal audit can be beneficial to your business operations, but it doesn’t replace an audit performed in accordance with generally accepted auditing standards (GAAS). Reports are sent to management, the board of directors, or the organization’s audit committee. While these individuals aren’t independent of the organization, they should be independent of the activities they’re auditing. Internal audits are performed by individuals within the organization. The internal audit process can be a helpful tool for businesses to evaluate risk and identify actionable ways to improve performance. Internal audits assess internal controls, processes, legal compliance, and the protection of assets. In this post, we outline 11 different types of audits, who conducts them, and share some common, real-world examples.
The process can be time-consuming, but businesses can benefit from audits! They can use audit findings to improve finances and internal controls, expose fraud risks, and help stakeholders make more informed decisions. Sometimes, audit reports are submitted to external stakeholders, such as banks, creditors, the public, or the government.Ī common misconception is that audits are bad – it’s not true. The audit team reports their findings to shareholders and other internal stakeholders of the company in the form of an audit report. In many types of audits, a certified public accountant (CPA) is engaged to obtain “reasonable assurance” that the records are presented fairly and accurately and comply with certain standards. Auditors may be hired to examine financial statements, management accounts and reports, accounting records, operational reports, revenue reports, and expense reports. Click any of the items listed above to jump to that section.Īn audit is a form of investigation.
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