Back to: Auditing
Hello, students
I hope you’re excited about what we are learning today.
Last week we talked about the meaning of auditing and why it’s important. This week, we will take it a step forward and talk about the different types of audits. So please pay attention, bring out your jotters, and let’s learn together.
Lesson Objectives:
By the end of this class, students should be able to:
Mention the major types of audits.
Explain what each type of audit means.
Identify examples of where each audit type is used.
Different Kinds of Audits
There are different kinds of audits, depending on what is being checked and why. Here are some common types:
1. Financial Audit
This is the most popular type of audit. It checks if the financial statements of a business are correct and follow accounting rules. It answers the question: “Is this business telling the truth about their money?”
Example: A company invites an auditor to check their profit and loss statement and balance sheet at the end of the year.
2. Internal Audit
This is done by the organisation’s own workers or internal audit department. The goal is to help improve the way the company is run and check if there are risks.
Example: The internal audit team in a bank may check if staff are following the rules when giving loans.
3. External Audit
This is done by someone outside the organisation. They are not part of the company and must be independent. The main aim is to check the fairness of the company’s financial reports.
Example: A company hires an external auditor to issue an audit opinion for their annual financial report.
4. Compliance Audit
This type checks if the organisation is following certain rules, laws, or policies. It could be government rules, tax laws, or internal company policies.
Example: A tax compliance audit by the Federal Inland Revenue Service (FIRS).
5. Operational Audit
This checks how well the organisation is working. It focuses on efficiency – how to save cost, time, and resources.
Example: An audit to check if a company can produce goods faster with fewer staff or less waste.
6. Forensic Audit
This is used when there is a suspected fraud or crime. It is very detailed and often used in court.
Example: When a company suspects money was stolen, they hire a forensic auditor to trace the money.
Classroom Discussion:
Lecturer: If a church wants to make sure their money is not being misused, which type of audit do you think they need?
Student Response (expected): Financial audit or compliance audit.
Lecturer: Very good! Any of those can be used depending on the goal.
Summary of Lesson:
Today, we have learnt that auditing is not only one thing. There are different types of audits for different purposes. Financial audits check money records. Internal and external audits look at how honest and fair the records are.
Operational audits look at how well things are done. Forensic audits catch fraud, and compliance audits ensure rules are being followed.
Evaluation:
Mention any four types of audits.
What is the difference between internal and external audit?
Which audit type is used to catch fraud?
Give one example of where a compliance audit maybe used.
What is the main aim of an operational audit?
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