Financial audits are very similar to audit reports because they both are reports that include the opinion on the validity of financial statements from an auditor. Financial audits are different from audit reports, as they are additional assurance of the financial statements. It is designed to reduce the risk of misstatement or miscalculation in a report, to give potential investors or other creditors a more correct idea of the financial position of the company in question. There are techniques and processes which auditors can use in order to form an accurate opinion of the financial statements. A few examples are physical examination and counting of accounts and transactions (this is a very tedious process), bank reconciliation (calculating the difference between a bank account and the account presented on the financial statement) and recalculation (recalculating the account balances and transactions themselves). The result is a formal opinion from an auditor that states whether or not they believe the company is reporting its activities in accordance with GAAP principles.
An operational audit is the overall evaluation of a company's effectiveness and efficiency of its operations. This type of audit scrutinizes every activity done within the company to ensure that each is aligning for the betterment of the company. The primary resource in an operational audit is policy and actual activity, not financial data. By looking at each aspect of the company individually, they can determine where the risk and ineffectiveness lies. This way, the activities that do not align with the company's goals and objectives can be targeted and altered. Control can be exercised over each aspect once divided, instead of looking at the entirety of the company as whole. The result of an operational audit will be increased long term profitability, new perspectives on business operations and improved employee motivation (the audit will create new goals for the employees to strive for). While the idea of a full operational audit may sound appealing to any company, they are very time consuming and expensive. As operational auditing is not specific to financial data, the audit does not need to be completed by an accounting auditor.
A compliance audit looks at whether a company is adhering to the rules and regulations which apply to their area of practice or activity. What is being auditing within the company is dependent upon what sort of activities it engages in. Examples of this include, but are not exclusive to:
- Health and safety regulations: ensuring that the company is remaining in accordance with the health and safety laws in a workplace determined by the government
- Privacy/security: for a company that deals with financial data, they are required to have that data backed up and under security (especially if they store credit card numbers and other personal information)
When audited, the company must be able to provide evidence that they are in compliance with the rules and regulations set upon them. If they cannot prove that they are adhering to the rules, there can be punishable consequences. Compliance auditors often come from many different organizations, like the Government of Canada or an electrical company. Where they come from depends on what factor of the organization they are auditing.
Assurance service is an additional audit done on a company from an independent firm to try and improve the information provided. Assurance services are usually classified under consulting services for this reason. By having another audit done, the company can ensure that the information it provides will be more accurate and reduce the information risk for the potential investors and creditors. Assurance services are similar to audits, however, assurance services can be customized to the services the company provides, using financial and/or non-financial data. These services can include helping management look at options when making a decision and help them choose the best one for their company. Assurance engagements often look at the effectiveness of past business cycles for the company, which means that they do not have to have professional knowledge of the topic. Because of this, assurance service providers are encourage to not engage in an assurance contract if they do not feel their firm can accurately help the company in decision-making. Besides an actual audit, examples of other assurance services include creating a customer service survey, business risk assessment or a 'comfort letter' (a letter confirming the financial soundness of a company).