Types of Audits

Types of Audits

Cost Audit

The CIMA (London), define cost audit as the verification of cost records and accounts and a check on adherence to the prescribed cost accounting procedures and their continuing relevance‖. Thus cost audit is a critical review undertaken for the purpose of (a) verification of correctness of cost accounts and (b) checking that cost accounting plans is adhered to. If cost audit is introduced based on the provision of a statute, it is called statutory cost audit. The ICWAI defines statutory cost audit as a ―system of audit introduced by the government of
India for the review, examination and appraisal of the cost accounting records and added information required to be maintained by the specific industries.
Cost audit may also be conducted may also be conducted by an internal or external agency on the instance of management to ascertain the product performance of a particular product from the given product profile of a company. In this case , it will not be statutory cost audit.

Efficiency Audit

Efficiency audit is a the audit, which ensures that every rupee invested yields optimum results. The main purpose of efficiency audit is to ensure that (i) there is most profitable utilization of investment and ;(ii) that investment is channeled in most profitable lines. It is pertinent here to differentiate between efficiency and effectiveness. Effectiveness denotes accomplishment of objectives and efficiency denotes fulfillment of objectiveness with minimum sacrifice of available resources. Viewed from these angles, accomplishment of objectives is line function, but higher management is always keen on efficiency aspects and therefore ―efficiency audit‖ becomes staff function and its successful implementation depends on the formation of organizational set up identifying their roles and responsibilities.
Efficiency audit also indicates towards appraisal or security of actual performance with reference to expected efficient standards. The parameters based on which efficiency audit is conducted are (i) return on capital (ii) capacity utilization (iii) optimum utilization of men, machine and material (iv) export performance and import substitution (v0 liquidity position (vi) Pay – back period.

Propriety Audit

The term propriety  means that which meets the tests of the public interest, commonly accepted customs and standards of conduct. Propriety audit refers to an audit in which the various actions and decisions are examined to find out whether they are in public interest and whether they meet the standards of conduct. Thus in conducting a propriety an auditor does not confine his concern to evaluate the evidence supporting a transaction. He attempts to examine regularly, prudence and impact of various actions and decisions.
The auditor, while conducting the propriety audit, should ensure compliance to the following cannons of financial propriety‘:-
i. The expenditure should not be more than the occasion demands.
ii. The authority, which has power to sanction the expenditure, should not pass order to its own advantages directly or indirectly.
iii. Public money should not be utilized for the benefit of a particular person or section of community.
iv. It should be so arranged that allowances are not on the whole source of profit to the recipient.

Social Audit.

A lot of work is being done these days to develop techniques to measure the contribution, that an enterprise makes to the society. It is increasingly realized that business entities have a social responsibilities and their performance should be viewed from this point of view. Every business action, if traced with sufficient care will be found to have both economic and social consequences. Social audit has received serious serious consideration only during the last few years. It attempts to measure the consequences of corporate actions estimate their costs to society.
Matters, which fall in the ambit of social audit, are:
a. Impact of an enterprise on ecology
b. Improving the minority group
c. Eliminate adverse affect on environment etc;
Social audit is a systematic attempt to identify, analyze a, measure evaluate and monitor the effect of enterprise‘s operations on society and on public well-being.
It is conducted to assess the company‘s contribution to the society- social well being of the country.

Internal Audit

Internal audit is an independent appraisal activity with in an organization for the review of operations as a service to management. It is a managerial control, which functions by
measuring.