Two type of audit
a) External Audit
b) Internal Audit
External audit-It is the type of audit which is conducted by an external audit body i.e. external to the organisation. EA is generally an audit of financial statements normally conducted at the end of the year i.e. on annual basis. It is the examination by an independent third party of the financial statements of the organisation. It results in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete, and fairly presented.
• Internal audit-It is the type of audit which has its unit within the organisation. It is conducted on regular basis within the organisation. IA is both an assurance and a consulting activity designed to add value and improve organisation’s operations in the areas of risk management, control, and governance processes.
• Objectives of Auditing
• Main objective (express opinion or reporting) (2) Subsidiary objective.
• The main objective of an audit is:
• an independent examination of the book of account and underlying records of an entity and to “express opinion” based on reliable evidence on the financial statements of the entity whether or not the financial statements give a true and fair view of the state of affairs at the end of accounting period under review and to report on any material inconsistencies between the directors reports and the financial statements
• Subsidiary objectives:
• the audit work is planned by the auditor in such a way in case there are frauds or irregularities they are exposed.
• Note: The concept of true and fair view has been authoritatively defined as follows:
• “… true and fair has become a term of art. It is generally understood to mean a presentation of accounts drawn up according to accepted accounting principles using accurate figures as far as possible and reasonable estimates otherwise, and arranging them so as to show within the limits of current accounting practice as objective a picture as possible free from willful bias, distortion, manipulation or concealment of material facts” (Lee).