The expression ‘audit’ generally refers to the financial statement of a company’s expenses. It is an essential aspect that every corporate entity must take into consideration. An audit is the examination or checking of account books to make sure that all departments are following the procedures and responsibilities that are allotted to them. There are various types of audits conducted in banks, companies, or other organizations. Concerning other types of audit in India, a management audit is a new concept borrowed from the USA. The sole aim of this audit is to help the company in profit maximization by focusing on the improvement of efficiency.
There are generally two types of audits in India.
Statutory audits are prepared to inform the Indian government regarding the condition of the finances of the concerned company. Such audit reports are prepared by independent auditors (to ensure fairness and accuracy) in the manner that is prescribed by the government.
Types of Statutory Audits that are common in India are given as follows.
An internal audit is performed by the employees of the concerned company on behalf of internal management to analyze the efficiency of the company and its finances. Indian Companies Act governs the public and private companies and audits of banking companies and provides provision for an internal auditing system.
Except for external audits and internal audits, the following types of audits are also prevalently used.
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A bank audit is a regular activity that is performed to inspect the financial activities of institutions to make sure that they are following the rules and regulations as prescribed by the statutes. An accounting expert, who is also known as a bank auditor, is appointed for the audit of banking companies. Bank audits can be either internal audits or external audits.
The emphasis on the audit of a banking company is based on compliance. The object of a bank audit is to find out if the financial activities of the institution are fair, legal, and complete. The main aim of the bank audit is to conduct an independent inspection of the bank’s performance, controls, and information systems. Various examinations are carried out on the systems, the findings are generated as well and auditors suggest some possible reformative actions that the bank should take.
Types of Bank Audits
There are many types of bank audits. Some of them are as follows.
Risk-based internal audit
Statutory audit and tax audit
The bank audit unveils the infringements of rules or regulations governing financial institutions and failures in compliance with the institution’s policies. Bank auditors look for the main set of issues so that they can come up with profiting suggestions. Their discoveries are documented and noted on file by the bank.
Risk-based internal audit is a type of bank audit that recognizes risks, such as:
IT and cyber risk
There is the same provision for government auditing as there are for the audit of banking companies, organizations, and institutions. The central government and state government both are audited respectively. The Comptroller and Auditor General of India (CAG) is the authority to keep a keen eye on the following.
The Comptroller and Auditor General of India makes sure that financial transactions done by the central and state government are implemented accurately and with the proper authorization. The main emphasis is given on the expenses done by governments.
Sec 12 of the Insurance Act, 1938 provides that the financial statements of an insurer have to be audited annually by an auditor. The audit of insurance companies is to be done by an independent auditor, whose duty is to inspect the policies, liabilities, risk evaluation, and several other financial records of the company. It is one of the most important types of audits in India.
The audit of insurance companies is conducted to make sure that proper insurance rates and premiums are being given. Despite that, the insurance auditor must keep a check on quality control between insurance companies and customers.
Q1. Name some essential points involved in Insurance Audit?
Answer: The following are the essential points in the audit of insurance companies.
Verification of premium
Verification of claims
Verification of commission
Verification of operating expenses.
Hence, it is clear that there are various types of audits in India such as insurance audits, government audits, bank audits, etc.
Statutory audits are performed in India for each fiscal year which is from April 1 to March 31, not as per the calendar year.
Management audits have been introduced recently and it is a new concept in India. The idea of a management audit has originated in the USA.
1. What is required for performing an Internal Audit?
Answer: To perform an internal audit the entirety of the money related records will be given by the financial officer for the review, including the registration register, bank articulation, store slip, dropped checks, financier's reports, cost vouchers, or warrants with charge receipts, the yearly financial officer's report and so on.
The following list of essentials in performing internal audit has been identified below-
1. Warrants and vouchers
2. Bills and receipts
3. Cheques and disbursements
5. Reports of treasures
These documents are required as well for performing an internal audit efficiently in the long run.
2. What is the difference between an Internal Audit and an External Audit?
Answer: An internal audit is intended to survey the key risks confronting the business, the adequacy of the business in dealing with those dangers alongside the control forms that the administration has executed. Inside examiners frequently play out a more warning job by giving proposals planned to help the executives in improving their frameworks and controls for the examples where they distinguish in the lacks in certain business regions. The goals of external audits are characterized by rules. The motivation behind an external audit is a valid and reasonable impression of where the organization has been monetarily and fittingly arranged as per the bookkeeping norms.