Explain the Different Classes of Audit.
Different Classes of Audit are:
Audit under Statues.
This is also called as Statutory Audit. In case of a company where audit is made compulsory by law is called Statutory Audit. It is so because these companies are formed under statue. Statutory Audit has been prescribed in the following cases:
- Banking Companies.
- Insurance Companies.
- Co-operative Societies.
- Public and Charitable Trust.
- Local Authorities and Government Undertakings.
Since audit is made compulsory in the above Companies even the shareholders of these enterprises cannot make it optional by their unanimous vote and can’t restrict the scope of such an audit.
Audit of accounts of private firms.
A partnership firm is based on mutual trust and confidence of the partners. Audited books of accounts help them in reposing and maintaining this trust. The auditor should pay attention to the following documents while conducting the audit of the partnership firm: Partnership Deed, Nature of Business, borrowing powers of partners, profit sharing ratios of partners etc.
Following are the advantages of audit of the private firm:
Advantages to the incoming, retiring and sleeping partners: Audited books of accounts create confidence among the incoming, retiring and sleeping partners. They have faith in such accounts for the purpose of knowing about the financial position of the firm.
Confidence among partners: Almost all the partners of a firm have got confidence and belief in the audited books. The chances of disputes are minimized because profits shown as per the audited books are believed to be true.
Helpful at the time of Dissolution: At the time of dissolution accounts are to be settled. The audited books prove to be of great help in such settlement.
Helpful for raising loans: If the accounts are audited it is easy for the firm to raise loans from different sources i.e. banks, financial institutions and companies.
Helpful in tax assessment:. If an independent auditor audits the accounts of the partnership firm, the tax authorities for the purpose of assessment readily accept the accounts.
Audits of Accounts of Private Individuals.
Audit of accounts of sole proprietor is optional and not obligatory it is always advisable for the sole proprietor whose income is large, derived from various sources and expenditure is also large to get the accounts audited by a qualified person.
Following are the advantages which a sole proprietor may derive by getting the accounts audited:
- Whenever there is dispute between the parties of the business concern, audited books of accounts act as a good evidence in he court of law and helps in settling the disputes.
- Audited books of accounts help not only in the correct assessment of Sales Tax, Income Tax, Wealth Tax etc but also in the correct assessment of Estate Duty, which the legal heirs are required to pay at he death of a person.
- Auditing increases the goodwill of the business.
- A sole trader can compare the accounts of the current year with the accounts of the previous year and he can know the progress of his business concern.
- All incomes and expenditure can properly be accounted for.
Audit of Trust Accounts.
Trusts are created for the benefit of religious or charitable institutions. Trusts are usually created for the benefit of weak and helpless persons like widows, minors etc. In large cases trustees either do not maintain accounts or improper accounts are made.
To avoid such situations specific provisions are sometimes made in the Trust deed for appointment of auditors. Once the trust accounts have been audited no one can make unnecessary criticism against the trustees and the beneficiaries are assured of the proper utilization of funds.