"Auditing is a systematic examination of financial statements through collection of sufficient and appropriate evidence with an intention of expressing an opinion whether the financial statement give true and fair picture or not".
Due to strong intention of humans to mis-state information, auditing and due diligence have become a legal requirement in most countries.
All audits are not the same. They are different based on to whom it is to be reported and on which area it is to be reported. For e.g. Statutory audit is conducted by government authority and it is them to whom it is to be reported.
There are different types of audit some of them are as follows:-
Statutory audit:-Statutory audits are conducted in order to report the state of a company’s finance and accounts to the government. The audit report of statutory audit is made in the form prescribed by the government agency. This audit is to be calculated by a qualified and independent auditor.
Internal Audit:-This audit is conducted by the own management of the company. We can say internal audit is a preparation for other independent audits. But the main intention of internal audit is to check the status of finance and operational efficiency of the company. This audit can be conducted by an independent party or by a company’s own staff. The report of internal audit is to be submitted to management.
Tax Audit :- Tax Audit is required u/s 44AB of the income tax act, 1961.Thsi section mandates that every person whose business turnover exceeds INR 5 crore and every person working in a professional with gross receipts exceeding INR 50 lacs must have their accounts audited by an independent chartered accountant. The Tax audit report is to be obtained by September 30th after the end of previous fiscal year. Non compliance attracts penalty of 1.5% of turnover or INR 5 Lacs whichever is lower.
System Audit:-System means collection or unification of activities, instruments, material, and people to achieve a specific goal. For e.g. Information system is collection of hardware and software acting together to serve a common purpose of providing information. When we talk about a system audit we most specifically refer to management system audit. A system audit is an audit of system/subsystem against system requirement. The main purpose of this audit is to check whether the system/subsystem is working according to the prescribed requirement or not.
Due Diligence:-Due diligence is a process of thorough and objective examination that is undertaken before corporate entities enter into any major transactions such as mergers and acquisitions, issuing new securities, project financing, debt-securitization amongst others.Due diligence assists the purchaser or investor in gathering all the necessary information about the organization he is acquiring or investing in prior to completion of transaction including critical success factor as well as strength and weakness.