Different Types Of Audits

What Are The Different Types Of Audits? There are three types of audits/types of auditing: internal, external, and IRS audits which this article will discuss in the order of the mentioning.Three main types of audits includes external audits, internal audits, and Internal Revenue Service (IRS) audits. External audits are performed by Certified Public Accounting (CPA). These are 4 types of audit accounting.

Types of auditing

Internal Audit

An internal audit is a department within a company that monitors the effectiveness of processes and controls. Internal audit capabilities are essential for large organizations with highly complex processes that are prone to process errors and control breaches. Internal audit is indispensable for enterprises with state participation, which need to ensure the stability of their internal control systems.

Internal audit is more than just security officers watching the business and reporting problems. It can also serve as an internal consulting department that adds value to your company’s operations. This is done by identifying opportunities for improvement and promoting change within the organization. Internal audit staff is responsible for the activities listed below.

Fraud Detection

Internal auditors regularly check systems and transactions for signs of fraud within the company. In this case, the officer may collect evidence for law enforcement purposes and recommend changes to controls to eliminate the possibility of further fraud.

Internal control assessments

Internal audit staff continually reviews controls to determine whether they are appropriate for their intended purpose and whether they are being used as intended.

Process Assessments

Internal audit staff reviews proposed process changes to determine whether the appropriate controls are still in place. Otherwise, the staff will recommend a change and review it later to ensure it is properly installed and followed.

Risk assessments

Internal audit staff examines the risks faced by the company, in particular, taking into account the likelihood of risks occurring and the number of losses associated with them. This information is used by management to determine whether strategic or tactical changes are needed to mitigate identified risks.

Asset protection

Internal audit staff reviews asset controls to determine if there is any risk of loss. This may lead to recommendations for changing controls to better protect your assets.

External Audit

An external audit is an audit carried out by an independent auditor. This type of audit is primarily aimed at checking the company’s financial statements. This certification is required for all public companies, as well as for some investors and lenders.

The purpose of an external audit is to determine:

The reliability and completeness of customer records;

Are customer accounts prepared in accordance with applicable accounting policies?

Whether the client’s financial statements accurately reflect the results of its operating and financial position.

There are other types of external audits that may focus on specific issues related to clients’ accounting records, such as fraudulent checks.

Internal Revenue Service (IRS) AUDIT

An IRS audit is a review of your information and accounts to make sure you are reporting accurately and complying with tax laws. In other words, the IRS simply double-checks your number to make sure there are no discrepancies in your report.

The following are the frequently asked questions (FAQs) about the IRS and the answers to the same questions are provided.

Why Does the IRS Audit People?

The IRS conducts tax audits to cut down on what is termed as “tax gap” or the difference between what is due to the IRS and what it actually receives. Sometimes IRS checks are random, but usually, it selects taxpayers when there is suspicion of tax invasion.

Generally, when there is suspicion of tax invasion, the IRS may include statements made during the last three years of the audit and years may be added if significant errors are found. However, it does not go beyond years aback.

How Long Does an IRS audit Take?

The duration depends on the type of audit. the complexity of the problem; availability of the requested information; whether or not both parties are present to make an appointment and agreement or disagreement with the result of the report.

How Does the IRS Conclude an Audit?

There are three ways to go through an audit:

No Change: An audit whose findings are congruent with the items in question and everything has been checked and no changes have been made.

Agreed: Audit when the IRS proposes a change and you understand and agree to the change.

Disagreed: An audit when the IRS proposes a change and you understand but are not in agreement with the change.

What Happens When You Agree with the Audit Findings?

If you agree with the results of the audit, you will be asked to sign an audit report or similar form, depending on the type of audit performed. If you are in debt, you have several payment options.

What Happens When You Disagree with the Audit Findings?

You can request an appointment with an IRS manager. The tax office can also offer arbitration or sue if there is enough time for the statute of limitations to expire.

In conclusion, an internal auditor works for the company they audit. External auditors, on the other hand, are independent of the clients or companies they audit. External auditors can be certified by a state authority to attain the status of a certified public accountants so that they can prepare certified financial statements for their clients.