Compliance Management, Audit and Due Diligence · Audit Principles and Techniques

Meaning, Objectives and Types of Auditing

Updated 11 October 2026 · Fact-checked

Auditing is an independent examination of an entity's financial statements or compliance, done to give reasonable assurance and an opinion. Under SA 200, the auditor checks whether the statements are prepared, in all material respects, under the applicable framework. Types include financial, statutory, internal, secretarial and compliance audits.

Understand Introduction to Auditing: Meaning, Objectives and Types

An audit is an independent check. Someone who is not responsible for preparing information examines it against a set standard and reports a conclusion. The standard may be an accounting framework, a law, or a company policy.

In a financial statement audit, the auditor gives an opinion on whether the statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. SA 200 says this opinion is common to all audits of financial statements. It is not a guarantee. It does not assure the entity's future viability, nor the efficiency or effectiveness with which management has run the affairs of the entity.

The assurance given is reasonable assurance, not absolute. The auditor identifies and assesses risks of material misstatement (due to fraud or error), obtains sufficient appropriate audit evidence through responses to those risks, and forms an opinion on that evidence. Throughout, the auditor uses professional judgment and maintains professional skepticism.

Audits are classified by who does them and why. Statutory audit is required by law (for companies, the Companies Act, 2013) and is done by an independent auditor appointed by members. Internal audit is done for management, often by employees or an outside firm, to review controls, risk and operations. Secretarial audit checks compliance with company law and other specified laws, and is done by a practising Company Secretary. Compliance audit tests adherence to a particular law, regulation or policy. Financial audit is the broad term for examining financial statements.

The auditor must also follow the fundamental ethical principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Where law requires more, the auditor does more. For example, section 143(3)(i) of the Companies Act 2013 requires the auditor to also report on the adequacy and operating effectiveness of internal financial controls.

Key rules to remember

Objective of a financial statement audit: Opinion on whether statements are prepared, in all material respects, in accordance with the applicable financial reporting framework; Based on SA 200. It is an opinion, not a guarantee of viability or management efficiency.
Three core auditor actions (SA 200): Assess risks of material misstatement → obtain sufficient appropriate evidence → form opinion; Done with professional judgment and professional skepticism throughout.
Fundamental ethical principles: Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour; Five principles listed in SA 200. Learn them as a list of five.
Level of assurance: Audit gives reasonable assurance, not absolute assurance; Use this phrase when asked about limitations of an audit.

How to solve Introduction to Auditing: Meaning, Objectives and Types questions

Use this method for any question on meaning, objectives or types of audit.

1Define audit in one or two lines: independent examination against a set standard, ending in an opinion or report.
2State the objective that fits the question: for financial audit, an opinion on whether statements are prepared, in all material respects, under the applicable framework.
3Mention reasonable assurance and what the audit does not give: no assurance of future viability or management efficiency.
4Classify the audit the question points to: who appoints, who performs, what law requires it, and what is checked.
5If asked to compare, use fixed heads: objective, appointed by, reports to, scope, legal basis, independence.
6Apply to the facts given in the case, naming the audit type that fits.
7Conclude with a clear one-line answer.

Quickest way: Who, why, for whom

When to use it: Use when a question asks you to identify or distinguish types of audit in limited time.

Ask who requires it: law (statutory, secretarial) or management (internal).
Ask what is tested: financial statements, or compliance with laws, or controls and operations.
Ask who receives the report: members, board, or regulator.
Write the definition, then two or three points of difference, then a conclusion.

Common mistakes in Introduction to Auditing: Meaning, Objectives and Types

Saying an audit guarantees the accounts are correct or the company is sound.
Students confuse an opinion with a certificate of accuracy.
Fix: Write 'reasonable assurance' and note that the opinion does not assure future viability or management efficiency.
Treating internal audit and statutory audit as the same.
Both examine records and controls, so they seem alike.
Fix: Contrast them: statutory is mandated by law and gives an opinion on financial statements; internal is for management and reviews controls, risk and operations.
Confusing secretarial audit with a financial audit.
The word 'audit' makes students assume accounts are checked.
Fix: Say secretarial audit checks compliance with company law and other specified laws, and is done by a practising Company Secretary.
Listing the ethical principles wrongly or adding extras.
Students recall 'independence' and 'skepticism' and mix them in.
Fix: Learn the five: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.
Writing only definitions without applying to the case facts.
Students rely on memorised notes.
Fix: Follow provision, analysis, conclusion. Name the audit type, link it to the facts, then conclude.

Worked examples

Example 1

Explain the meaning and objective of an audit of financial statements. Does the auditor's opinion assure the future viability of the company?

Show the solution

Meaning: an audit is an independent examination of financial statements, against a set framework, to give an opinion.
Objective: under SA 200, the opinion deals with whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
Method: the auditor assesses risks of material misstatement due to fraud or error, obtains sufficient appropriate audit evidence through responses to those risks, and forms an opinion on that evidence.
Limits: SA 200 states the opinion does not assure the entity's future viability, nor the efficiency or effectiveness with which management has conducted its affairs.
Conclusion: the audit gives reasonable assurance on the statements only.

Answer: An audit is an independent examination ending in an opinion on whether the statements are prepared, in all material respects, under the applicable framework. No, the opinion does not assure future viability.

Example 2

Meridian Components Ltd, a listed Indian company, has a statutory auditor appointed by members. Its board also hires a firm to review warehouse controls and a practising Company Secretary to check compliance with company law. Identify each audit and state one difference between the first two.

Show the solution

The audit by the auditor appointed by members is a statutory audit, required by the Companies Act, 2013, giving an opinion on the financial statements.
The review of warehouse controls for the board is an internal audit, aimed at controls, risk and operations.
The check of compliance with company law by a practising Company Secretary is a secretarial audit.
Difference between the first two: statutory audit is mandated by law and reports an opinion on financial statements to members; internal audit is commissioned by management or the board and reviews controls and operations.
Conclusion: three distinct audits with different purposes and report users.

Answer: Statutory audit, internal audit and secretarial audit respectively. Statutory audit is legally required and addressed to members on the financial statements; internal audit serves management on controls and operations.

Exam tips

Start every answer with a one-line definition, then the objective. Examiners reward structure.
Use the phrase 'reasonable assurance' and state what the audit does not assure.
For compare-and-contrast questions, use fixed heads such as objective, appointment, report user and scope.
In case-based questions, name the audit type from the facts before explaining it.
Quote section 143(3)(i) only for the auditor's reporting on internal financial controls; avoid citing other sections unless you are sure.

Practice questions from Audit Principles and Techniques

Introduction to Auditing: Meaning, Objectives and Types: frequently asked questions

What is the main objective of auditing financial statements?

The auditor forms an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. The opinion rests on sufficient appropriate audit evidence.

What is the difference between internal audit and statutory audit?

Statutory audit is required by law and gives an opinion on the financial statements to members. Internal audit is done for management or the board and reviews controls, risk and operations. Scope and reporting line differ.

Does an audit guarantee that there is no fraud or error?

No. An audit gives reasonable assurance, not absolute assurance. The auditor assesses risks of material misstatement due to fraud or error and responds to them, but cannot guarantee none exists.

What are the fundamental ethical principles for an auditor?

They are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. SA 200 lists these from the Code of Ethics.