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Audit
Audit is usually refers to the Independent
audit, which is the process of evaluating whether the entity's financial statements
are fairly presented in accordance with Generally Accepted Accounting Principles
(GAAP).
The audit of financial
statements is designed to test the statements’ assertions in relation to:
Presentation and disclosure
Financial statements are properly
classified, described and disclosed in conformity with Generally Accepted
Accounting Principles (GAAP)
Existence or occurrence
Assets and liabilities are real and the
transactions recorded are valid
Rights and obligations
The assets are owned by the company and
the liabilities are obligations of the company
Completeness
All transactions and accounts that should
have been recorded have been recorded
Valuation or allocation
All accounts have been included in the
financial statements at the appropriate amounts
Internal / Operational Audit
Operational Audit is a feasible start for a small business, and prior to
undergo an independent audit. The accountant performing an operational audit can
provide valuable input to improve the company's
internal control system, which,
in turn shall provide the independent auditor with the level of reliability of
controls needed to perform the independent audit with less testing and lesser
cost to the client.
Internal audit
can be performed on many aspects of the operations or the company's
information system and it is less costly than
the independent audit because of the limited liability assumed by the auditor,
in comparison to independent audit. The chart below may be of some help to
compare audits
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TYPES OF AUDITS & AUDITORS |
| EXTERNAL AUDITORS |
INTERNAL AUDITORS
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GOVERNMENTAL AUDITORS |
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CPA’s who are hired as independent auditors
(independence is a MUST) |
CPA or Company employees (independence is
optional) |
Local, State or Federal employees who may audit their own organization or other governmental
organizations |
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Perform financial statement audits, or other tasks
as may needed |
Perform mostly operational audits |
Perform mostly compliance audits |
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Examine financial statement assertions |
Examines all or part of organization’s activities |
Examine person’s or entity’s actions |
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Criterion is Generally Accepted Accounting Principles,
and certain Government standards if auditing government entities |
Criteria are the efficiency and/or effectiveness of the
company’s operations |
Criteria are policies, codes, laws, regulations, etc. |
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Report on fairness of F/S in conformity with GAAP |
Report on recommended improvements |
Report on compliance with criteria |
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The report is usually used by external users
(investors, banks, etc.) |
The report is usually used by the organization
management (internally) |
The report is usually used by a specific agency |
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