Types of audits

So far we have tended to think in terms of the audit of limited companies, and indeed, the emphasis throughout this text will be on such companies incorporated under the Companies Act 1962, not least because this type of audit situation is at the heart of the vast majority of auditing examination questions. However, it might be convenient at this stage to briefly indicate the main classes of audit which are undertaken in practice. There are two types of audits as follows: Statutory Audits and Non-Statutory Audits.


Statutory Audits:  

Audits are obligatory under statute in the case of a large number of undertakings including the following:

Non-statutory Audits:

Non-statutory audits are performed by independent auditors because the owners, proprietors, trustees, members, proficient and governing bodies or other interested parties desire them, not because the law needs them.

In consequence, auditing may and will extend to every type of undertaking which produces accounts, and will include therefore:

a) Clubs;
b) Charities (assuming an audit is not in any event statutory);
c) Sole traders; and
d) Partnerships

It may also extend to forms of financial statement other than the annual reported figures where those responsible for the statement, or those to whom the statement is made, wish an independent opinion to be expressed as to whether it gives a true and fair view.  Examples would include:

a) Summaries of sales in support of a statement of royalties’ payable where goods are sold under license;
b) Statements of expenditure in support of applications for regional development or other governments grants; and
c) The circulation figures of a newspaper or magazine, used when soliciting advertising.

In all such audits the auditor must have regard to any regulations concerning financial statements which are contained in the internal rules or constitution of the undertaking. Examples of the regulations which would be essential reference material for the auditor in such assignments would include:

a) The Rules of Clubs, Societies and Charities
b) Partnership agreements.