What are the Types of Audit Services (Explained)

Auditors can perform an independent review and issue an opinion on various reports produced by the management by providing different audit services. It is important to note that audit is not limited to the financial statements but other reports produced by the management. There are many types of audit services, which we will discuss in this article.

1) External Audit Service

External audits are performed based on statutory requirements by external auditors. External auditors normally refer to audit staff who are working in audit firms.

These kinds of audit firms are required by law to have an audit license to operate and issue audit reports. They must also abide by the professional code of ethics, International Standards on Auditing, and applicable accounting standards.

The firms are independent of the clients they are engaged to audit. If there is any conflict of interest or threats to their independence and objectivity, proper safeguards will be put in place.

2) Internal Audit Service

An internal audit could be performed by in-house internal auditors or outsourced to an independent third party. It has the goal of adding value to the entity and improving its operations. It offers a disciplined and methodical approach to monitoring and reviewing the entity’s corporate governance, internal control, and risk management.

In larger companies, the internal audit team is usually under the care of an audit committee, usually made up of directors of the entity. The audit committee will define the scope for internal audit. If there is no audit committee or board of directors, the internal audit team will report directly to the owners.

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3) Operational audit Service

An operational audit is performed when an entity wants to have its operational procedures, key processes, and internal control systems reviewed by an experienced and independent third party. This is because operational audit focuses on finding out what controls should be added or improved and identifying processes that may have been the cause of the waste of resources.

The entity’s main purpose in engaging this type of auditor is to help determine what could be improved so that its operations can be more efficient, effective, and productive. More often than not, an operational audit is performed as a part of an internal audit.

4) Information Technology Audit (IT Audit)

Nowadays, most entities are becoming more reliant on technology services, and their accounting software is usually interlinked with other parts of their businesses through complex IT systems.

For example, the point-of-sale system at the storefront of a retail business is linked directly to the backend accounting software. Sales entries will automatically be posted in the accounting software when someone keys in a sale at the point-of-sale system.

An IT audit is a type of audit that checks and assesses such systems and all the entity’s other information system structure, security system, and system integrity since it will largely affect the output produced by the system. Such audit is performed to determine if the systems are reliable.

Although entities can engage IT auditors, separately, an IT audit is often an integral part of an external audit. This is to allow the external auditors to ensure that the IT system is reliable to help them decide whether to rely on the information produced by the system.

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5) Forensic Audit

A forensic audit is the conduct of a financial investigation in response to a specific subject matter. The investigation results are typically used as evidence in court or conflict settlement. Due to its nature of work, this type of audit is not very popular.

A forensic accountant with experience in auditing, investigation, and accounting is in charge of performing a forensic audit. These forensic accountants are also required to follow the professional code of ethics like normal auditors.

To carry out a forensic audit, the forensic accountant needs to plan, perform certain procedures and issue a final report like any other audit engagement.

6) Special Audit

A special audit is often an internal auditor’s audit assignment, usually under certain circumstances. For example, it could be a suspicion of fraud or money laundering or a business case. The audit committee could request the special audit, board of directors, or even the chief executive officer (CEO).

It may sound very similar to the work performed in forensic audit, but it is different in how the entity’s own employees carry out a special audit.

Once a special audit is completed, a report will be prepared and submitted to the people requested for the audit, be it the audit committee, the board of directors, or the CEO.

7) Tax Audit

A tax audit is a type of audit carried out by the tax authority. Tax audits are usually performed as routine checks on selected entities or when the tax authority doubts the tax returns filed by certain entities.

Unlike most audit engagements, the entity is not the one that initiates a tax audit engagement with the tax auditor. Instead, the tax authority will come by themselves.

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When being requested for a tax audit, all the entity needs to do is ensuring that it is able to supply all the supporting documents relevant to its tax returns.

To avoid any undesirable findings during a tax audit, the entity should also ensure that it follows all the tax law requirements when filing its tax returns and consult a tax consultant for any areas that it is unsure about.

8) Agreed Upon Procedures (AUP)

An agreed-upon procedure is a limited assurance engagement where the auditors perform their review based on the procedures agreed with the client. Although the client sets the procedures, the auditors will also need to make sure they are doable and logical since they will need to report the findings.

Like any other audit engagement, auditors will also need to ensure no conflict of interest between the audit team and the client. If so unfortunate that there is a conflict of interest, safeguards need to be introduced to remove the conflict.