Audit Classification and Types

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What distinguishes independent audits from internal audits?

Internal audits are always more credible.

Independent audits are conducted by employees of the organization.

Internal audits are recognized as more formal.

Independent audits are conducted by qualified individuals not employed by the organization. (correct)

Which type of audit is required by law?

Internal audit

Statutory audit

Independent audit

Non-statutory audit (correct)

What is a completed audit primarily conducted for?

To support internal management controls.

To assess ongoing financial activities.

To examine balance sheet items exclusively.

After the annual closure of accounts. (correct)

What is the main objective of vouching in accounting?

To establish the authority and authenticity of recorded transactions. Signup and view all the answers

Which of the following best describes a continuous audit?

An audit involving regular or irregular checks throughout the year. Signup and view all the answers

What is the primary difference between private and government audits?

The method of appointment and reporting differs significantly. Signup and view all the answers

Which statement is true about internal audits?

Internal audits enhance managerial control within the organization. Signup and view all the answers

What is the primary focus of asset verification by an auditor?

Confirming the existence, ownership, and value of assets. Signup and view all the answers

What is the focus of a balance sheet audit?

Examining items specifically in the balance sheet. Signup and view all the answers

During asset verification, how should an auditor check for the existence of assets?

By reference to documentary evidence or physical inspection. Signup and view all the answers

Which aspect relates to an auditor verifying the right to dispose of an asset?

Ownership of Assets. Signup and view all the answers

What does an auditor need to ensure regarding the value of assets?

That they follow generally accepted accounting principles. Signup and view all the answers

What must auditors check regarding the charge or lien on assets?

That all assets are free from any charge or lien. Signup and view all the answers

Which of the following is NOT a responsibility of the auditor during asset verification?

Evaluating the strategic plans for asset acquisition. Signup and view all the answers

What is meant by 'proper presentation' of assets?

All assets should be correctly disclosed and described in financial statements. Signup and view all the answers

If physical inspection is not feasible, what alternative should the auditor consider?

Obtaining evidence from third parties. Signup and view all the answers

What is the primary objective of internal check?

To prevent frauds and errors Signup and view all the answers

What is the term for the periodic checking of accounts by internal auditors?

Internal Audit Signup and view all the answers

What is the documentary evidence that authenticates a transaction in accounts called?

Voucher Signup and view all the answers

What is the technique called where the auditor certifies assets and liabilities shown in the Balance Sheet?

Verification Signup and view all the answers

Who can appoint the auditor in a company?

Company's Board of Directors Signup and view all the answers

Which of the following is NOT a primary duty of an Auditor under the Indian Companies Act 2013?

To ensure revenue generation Signup and view all the answers

What does the final report prepared by an auditor after verifying accounts refer to?

Audit Report Signup and view all the answers

What type of audit is compulsory for all limited companies in India?

Financial Audit Signup and view all the answers

Why should head office send statements of accounts to old customers?

To inform them about their debts and balances. Signup and view all the answers

What is a key responsibility of the officer checking postal sales?

Carefully reviewing the register and returned goods. Signup and view all the answers

What is a major Corporate Governance Scandal in India?

Junk Bond Scam Signup and view all the answers

What type of cheques should be used for payments beyond a certain amount?

Crossed cheques. Signup and view all the answers

Which of these is considered a Corporate Governance Problem?

Conflict of Interest Signup and view all the answers

Who should have the authority to sign cheques?

Only authorized persons. Signup and view all the answers

What term describes policy statements that define ethical standards for a company's conduct?

Corporate Code Signup and view all the answers

What is crucial for maintaining proper cash payments according to the guidelines?

Receipts must be collected for each payment. Signup and view all the answers

What is the essential function of a separate department for credit purchases in a business?

To focus on purchasing high-quality goods at competitive prices. Signup and view all the answers

How is the responsibility of a business organization towards its stakeholders termed?

Corporate Social Responsibility Signup and view all the answers

What is the approach focused on creating long-term value through environmental strategies called?

Corporate Sustainability Signup and view all the answers

Why should the person in charge of making payments not be connected to cash receipt?

To avoid conflicts of interest and reduce fraud risk. Signup and view all the answers

What is the purpose of properly arranging and maintaining receipts through a cash book?

To ensure easy access to payment history for audits. Signup and view all the answers

What term describes a practice of purchasing products that minimize environmental impact?

Green Procurement Signup and view all the answers

Which term refers to the effective translation of an institution's mission into social value-oriented practice?

Corporate Governance Signup and view all the answers

Which option represents a form of Corporate Social Responsibility?

Environmental Policy Changes Signup and view all the answers

Study Notes

Classification of Audits

Audits can be classified based on the form of organization as Private Audits and Government Audits.
Method of appointment and reporting varies significantly between private and government audits.

Types of Auditors

Independent Audit: Conducted by a qualified professional externally hired, enhancing credibility.
Internal Audit: Conducted by employees, aimed at improving managerial control within the organization.
Legal frameworks, such as the Indian Companies Act and Chartered Accountants Act, emphasize auditor independence.

Legal Classification of Audits

Statutory Audit: Mandatory audits required by law, guided by acts like the Companies Act and Banking Companies Regulation Act.
Non-Statutory Audit: Conducted voluntarily without legal compulsion.

Examination Methods

Continuous Audit: Involves regular or irregular inspection throughout the year.
Completed Audit: Conducted after the financial year-end, often referred to as Final Audit or Annual Audit.
Balance Sheet Audit: Focused specifically on reviewing balance sheet items.

Vouching and Verification

Vouching: The process of verifying the authenticity of transactions recorded in books through supporting documentation.
Verification: Confirming the truth of transactions and assets including existence, possession, and ownership.

Key Points in Asset Verification

Existence: Verify assets through documentary evidence or physical inspection; third-party confirmations are acceptable.
Ownership: Ensure rightful ownership of the assets.
Possession: Confirm whether assets are in actual or constructive possession and review any liens or pledges.
Valuation: Ensure proper valuation according to accepted accounting principles.
Freedom from Charge: Validate that assets are free of liens or encumbrances.
Proper Presentation: Clear and accurate representation of assets in financial statements is essential.

Internal Controls and Payment Procedures

Separation of Duties: Person handling cash payments should not be involved in cash receipts.
Cheque Payments: Payments should preferably be processed via cheques, with strict controls on cheque preparation and signing.
Record Keeping: Maintain comprehensive records for all transactions, ensuring checks against invoices and statements prior to payments.

Internal Audit Objectives

Key objectives include fraud prevention, determination of responsibility, and avoidance of omissions in accounting practices.

Corporate Governance Concepts

Corporate governance issues can arise from conflicts of interest or mismanagement.
Companies should establish ethical standards and maintain corporate social responsibility towards stakeholders.

Sustainability Practices

Green Procurement: Focuses on acquiring products and services with minimal negative environmental impacts.
A sustainable business approach aims to create long-term value for consumers and employees while supporting social performance.

Common Audit Terms

Audit Evidence: Document substantiating account entries.
Auditor's Report: Final report submitted after audit completion.
Cost Audit: Verifies costs in adherence to accounting principles.

Additional Observations

Internal checks are vital to maintaining the integrity of financial transactions.
Ethical corporate policies are critical for operational success and stakeholder confidence.

Questions to Consider

What types of audits are required by law in your country?
How can internal audits help improve organizational efficiency?
Why is asset verification essential in the auditing process?

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz covers the various classifications and types of audits, including private, government, independent, and internal audits. It also discusses legal frameworks governing audits and the methods of examination utilized. Test your understanding of these key concepts and their applications in auditing.