The term auditing has been defined and explained. So, let’s move forward to explain the types of auditing that exist. You can decide to be one of them by pushing your career to the limit. It is one of the best jobs you should consider in the finance field. Why? Because it gives you the power to police a business and its resources. There are two types of auditors. But, these two basic types can further be divided to make it six. And that’s what we will discuss here.
This is one of the basic types of auditors. Internal Auditors are employees in an organization. Normally, they work under the internal control department. Anyone can become an internal auditor in a small firm as long as he is trained on how to do the job and has integrity. However, in a large business lower-level auditors can possess a graduate degree in accounting. But middle and higher-level auditors are expected to be chartered accountants.
Internal auditors’ task is similar to external auditors. However, they perform the bulk of audit work. They examine all business transactions that took place in the organization. Check for areas of risk and work on reducing them. Examine financial statements and tax returns. As well as ensuring that every employee complies with policies among other things.
This is the second basic type of auditor. Here, an external practitioner is requested to perform the audit. It is a requirement by law for every quoted company on the stock exchange market to audit its financial reports. This statutory auditing is done by an external auditor. He or she or an audit firm is appointed by the shareholders in the annual general meeting. To qualify as an external auditor you need to be a chartered accountant and obtain the license to practice it.
Since he is not employed by the company, he is independent. And cannot be easily influenced by entity management. An external auditor can’t examine all business transactions. Therefore, they take samples. However, their major job is on financial statement audits. So, they focus more on transactions relating to the line items in those statements.
The tax auditors are the job of the tax authority. Therefore, it fails as an external audit. If tax officials are not available to perform the tax audit, an audit firm can be employed to do so on behalf of the internal revenue service. Tax audits involve examining the books of accounts, financial statements, and tax computation to find out if a company has invaded tax.
Invading tax is a serious offense and a big risk to an entity. It can lead to the closure of such an entity or the payment of a huge fine that can erode the company’s bottom line. The internal control department may have auditors that specialize in tax audits. This personnel can examine the records and statements to ensure that accurate tax returns are reported to the revenue authority. Thereby preventing anything that can result in tax evasion.
Information system auditors
This is another hybrid of the two basic auditing. Here, the focus is on the audit of the information system. In most cases, it falls under assurance by review. Therefore, the auditor is not expected to give reasonable assurance but a limited assurance. Information system auditors examine the information technology equipment and software used by an entity. They ensure that such a system provides accurate and reliable information for the organization.
In today’s technology-driven world, most entities are using tech to make work processes easier and faster. Thereby doubling output. However, it is important to audit these IT tools to ensure that they continue to provide what is expected from them. Also, employees using IT tools need to be monitored. To avoid privacy bridges and malware that can arm the entity’s database.
It is the job of the information system auditor to access all these areas. To become one, you need to undergo training as a chartered accountant and a system auditor. To become a system auditor, you must undergo training with certified information system auditors (CISA).
The job of a forensic auditor is to catch fraudulent individuals. This is a special type of audit. Because most auditing is done by examining financial statements and not to identify fraud and the individual or group involved in it. To be one, special training is done by the chartered accountant institute. However, you can also be a certified fraud examiner (CFE). It is an internal certification for forensic Auditors and professionals.
This examines government books of accounts and reports. It can also be internal and external. In many cases, the government of Nigeria has employed the services of one or more big four accounting firms to audit the books of certain parastatal. Also, there is a team of government internal auditors headed by the auditor general of the federation. Their role is similar to the private sector. The singular difference is that they verify the books of government ministries, departments, and agencies.
In summary, there are two types of auditors. That is internal and external. However, the remaining four types can also fall under the main types. Aside from government audits, forensic, tax, and information system auditors are a special type of auditing.