(a) Describe the following types of Audits:
i. Statutory Audits;
ii. Internal Audits;
iii. Private Audits;
iv. Management Audits;
(i) Statutory audits
These are carried out as per the requirements of the various statutes e.g. the Companies Act cap 486 requires that all public limited companies must have their financial statements subjected to an independent audit. The objectives of the audit are to express an opinion as to whether the balance sheet and the profit and loss account show a true and fair view. The rights and duties of the auditor are laid out in the Companies Act or the relevant statute. The powers of appointment of the auditor are vested on the shareholders.
(ii) Internal audits
Internal audits is an appraisal or monitoring activity established management for the review of accounting and Internal Control System as a service to the entity. It examines, evaluates and reports to management on the adequacy and effectiveness of the systems.
Other activities include: –
a) Examination and evaluation of financial and operating information.
b) Review of the economy, efficiency and effectiveness of operations including non-financial controls
c) Review of compliance with external laws and regulations and internal policies and procedures.
d) Carrying out special investigations including fraud investigations as required management.
It is important to note that internal audit is a management function established to carry out a continuous appraisal on the internal controls system and report this to management.
(iii) Private audits
These are audits that are not governed the Companies Act or any other statute. These are performed an independent auditor because the owners, members or other interested parties require them and not because the law requires them to be carried out. Private audits are carried out for organizations such as NGOs, partnerships, clubs and charities among others. The appointment of the auditor is usually carried out as a private contract between the auditor and the relevant stakeholder. The scope and objective of the work is determined the agreed terms between the auditor and the client. The auditors‘ rights and duties are also laid out in the contract.
(iv) Management audits
Management audits relate to the review and evaluation of the management structure within the organization and the performance of the management. It includes the appraisal of the environment for the exercise of management skills as well as the measurement of external management performance against established criteria.