Major Types of Audit Engagements

Audits involve the systematic and independent examination of an organization’s statutory records, documents, vouchers, and book of accounts. Typically, audits seek to determine the extent to which an organization’s financial and nonfinancial disclosures reflect its true position. During the audit, auditors attempt to ensure that a company’s accounting books reflect are properly maintained as required by law. To meet the goals of corporate auditing, experts employ three discrete types of auditing methods. These are process, product, and system audits. Other methods such as document and desk reviews may be used independently, in conjunction, or to complement the three major types. This post provides a broad overview of the three discrete auditing methods and the audit phase.

Top Three Discreet Auditing Approaches

Product Audit: reviews any service or product to evaluate its conformance to design standards, specifications, consumer requirements, or performance standards.

Process audit: this type of audit verifies that processing functions meet design limits. In it, auditors evaluate whether operational methods meet set standard or instructions and how far these processes conform to the standards of efficiency.

Process audits may: Assess a process’ conformance to pressure, time, accuracy, amperage, responsiveness, composition, component mixture, or temperature.

Evaluate whether processing resources (employees, materials, equipment) are properly applied in the process of converting inputs into outputs, environmental regulations, methods used and any collective measures that affect operational performance.

Assess the appropriateness and efficacy of control procedures to operational protocols, flowcharts, workflows, processes, and training.

System audit: this is a type of an audit performed on management systems. Often system audits seek to document by verifying, examining, and evaluating objective facts to determine whether a system ‘s major elements are utilized according to developed, established, implemented, and documented system requirements. Subsequently, a system audit may include:

An overall quality management system audit that evaluates a system’s quality program to determine its compliance with contractual obligations, company policies, and regulations.

An environmental system audit to assess if a system complies with environmental regulations and a food safety system audit that examines whether a system meets the requirements of the food safety management system and an audit that examines the status of system’s safety program.

Internal and External Audits

Both internal and external audits have three stages: first, second, and third-party stages.

  • First party Audits- conducted by organizations to establish its strong and weak points against internal procedures, standards, or external procedure or standards. First party audit is either voluntary or mandatory. During a first party audit, organization auditors have no stake in the audit and therefore act impartially.
  • Second Party Audits: in this type, a customer appoints an auditor to audit a supplier or organization of interest in the presence of an active contract. These audits are subject to contract law and provide direction between the supplier and customer. Typically, second party audits are highly formal than first-party audits as finding influence how the customer decision-making capacity.
  • Third Party Audits: a type of audit conducted in whihc an external organization audits the customer-supplier relationship and is typically free from bias or conflict of interest. Usually, the presence of an independent auditor characterizes their party audits. The outcome of this type of an audit includes official recognition, certification, registration, licensing citations, fines awards or personalities. With that in mind, let us turn our attention to the four phases of the audit process.

Audits involve a four-way procedure

Preparation: this stage involves activities performed by an audit’s parties including the lead auditor, the client, the auditor, and the audit manager for meeting the audit’s goals or objectives. The preparation stage terminates when the actual audit begins.

Performance: the actual phase of the auditing process alternatively referred to as fieldwork. It extends from when the audit team arrives on location up to the exit meeting. This phase involves the collection of data, on-site management, meetings, processing, system controls and verification, information interchange, and contact with the audit’s audience.

Reporting: generally, at the end of an audit a report is presented with the results of its findings. An audit report provides the audience with accurate and clear data that benefit an organizations management and is useful for addressing identified issues that need improvement. Often, an audit ends when the lead auditor presents the report or after follow-up activities have completed.

Follow-up and Closure: in compliance with ISO 19011 clause 6.6 an audit completes immediately all designated audit activities terminate or after a client agrees to end the audit. However, clause 6.7 indicates that follow-up activities may be part of a future audit.

As organizational audits play an important role in helping organizations identify their shortcomings, you might find yourself looking for a London accountancy firm to help you perform an audit on your organization. Please feel free to contact us to find out how we can be of assistance.

Leave a Reply