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TABLE 1-2 Example of three types of audits

Type of audit example information Established Available


criteria evidence
Operational Evaluate whether Number of Company Error reports,
audit the computerized payroll records standards for payroll records,
payroll processing processed in a efficiency and and payroll
for a Chinese month, cost of the affectiveness in p;rocessing costs
subsidiary is department, and payroll
operating department
efficiently and
effectively

Compliance Determine whether Company records Loan agreement Financial


audit bank requitments provisions statement and
for loan calculations by
continuation have the auditor
been met
Financial Annual audit of Boeings Generally Documents,
statement audit boeings financial financial accepted records, and
statement statements accounting outside resources
principles of evidence

Types of audits

Cpas perform three primary types of audits, as illustrated with examplesin table 1-2 (p.33) :

1. operational audit

2. compliance audit

3. financial statement audit

operational audit

an operational audit evaluated the efficiency anf effectiveness of any part of an organizations
operating procedures and methods. For example, auditors might evaluate the efficiency and
accuracy of processing payroll transactions in a newly computer system

in operational auditing, tehe reviews are not limited to accounting. They can include the
evaluation of organizational structure, compuer eperations, production methods, marketing, and
any other area in which the auditor is qualified. Because of the many different areas in which
operational effectiveness can be evaluated, it is impossible to characterize the conduct of a
typical operational audit. In one organization, the auditor might evaluate the relevancy and
sufficiency of the information used by management in making decisions to acquirenew fixed
assets.

compliance audit

a compliciance audit is conducted to determine whether the auditeeis following specific


procedures, rules, or regulations set by some higher authority. Following are examples of
compliance audits for a private business

XBRL Extensible business reporting language (XBRL) is a language for the


ELECTRONIC electronic communication of business and financial data developed by a
DATA TO non-profit consortium of companies and government agencies to enchance
IMPROVE the usability of financial information. XBRL is used to encode financial
FINANCIAL statement using data tags so that the financial information can be read
REPORTING automatically by XBRL-enabled software and more easily sorted and
compared.
In 2009 the SEC adopted rules requiring public companies to provide
interactive financial statement data in XBRL format. Although auditors may
attest to this data under attestation standards, companies are not required to
obtain assurance from auditors to other parties on the interactive data.

Sources : interactive data to improve financial reporting,SEC final rules


(sec.gov/rules/final/2009/33-9002.pdf);2. XBRL international
(www.xbrl.org).

Determine whether accounting personnel are following the procedures prescribed by the
company controller.

Review wage rates for compliance with minimum wage laws

Examine contractual agreement with bankers and other lenders to be sure the company is
complying with legal requirements

Determine whether a mortgage bank is in compliance with newly-enacted government


regulations.
Many private and not-for-profit organization have prescribed policies, contractual aggrement,
and legal requirements that may require compliance auditing.

Result of compliance audit are typically reported to management, rather than outside users,
because management is the primary group concerned with the extent of compliance with
prescribed procedures and regulation.

financial statement audit

a financial statement audit is conducted to determine whether the financial statement ( the
information being verified) are stated in accordance with specified criteria.

As businesses increase in complexity, it is no longer sufficient for Auditors to focus only on


accounting transaction. An integrated approach to auditing considers both the risk of
misstatements and operating control intended to prevent misstatement. the auditor must also have
a through understanding of the entity and its invorenment. the auditor also considers the clients
business strategies and processes and critical success factors related to those strategies. This
analysis helps the auditor identify business risks associated with the clients strategies that may
affect whether the financial statement are fairly stated.