At Dirmeik Consulting, we offer a range of auditing services but often there is some confusion around the different types of auditing. Many people have negative connotations to auditing when there has been forced external auditing and fail to see the many positives that internal auditing can provide a business. In this article I will give an overview of auditing and briefly touch on some of the different types of financial auditing.
If we look at the basic meaning of auditing, it is the evaluation of a person, organisation or process to ascertain the validity and reliability of information. Sounds like a rather useful and valuable process when you see it written like that, doesn’t it?
This is why auditors exist, to thoroughly evaluate an individual, business or process in order to check that all documented info is correct and free from material error.
Financial auditing is an important and often neglected part of any business and is vital to larger organisations while still being relevant to smaller companies. By undertaking an audit periodically, certain problems and inconsistencies can be revealed even though the business appears to be stable on the surface. The auditor therefore acts as an objective third party and assesses a business’s financial statements, either to generate a report for interested parties, such as investors, on the health of the business or to ensure that cash flow is being recorded correctly.
Internal auditing: This is designed to add value to an organisation as well as improve a business’s operations. An internal auditor is usually an employee of the company who evaluates (or audits) the companies records to provide a final report to the board of directors or management.
External auditing: This is when an independent auditor performs an audit on a company’s records in accordance with specific laws. The auditor then compiles an independent and unbiased report that can be used by government agencies, investors, etc as a reliable source of information.
Forensic reporting: The word “Forensic” implies that it is for use in a court of law. Therefore forensic auditors (which is a specialist area of auditing), carry out audits usually associated with disputes or litigation and are often expected to give their professional advice in a subsequent trial.