Compliance Management, Audit and Due Diligence · Concepts of Various Audits

Audit: Meaning, Objectives and Types for CS Professional

Updated 11 October 2026 · Fact-checked

An audit is an independent, systematic examination of books, records and systems to form an opinion on whether they give a true and fair view or comply with the law. Its objectives are opinion, error and fraud detection, and compliance. Types are classified by who does it, what it covers and why.

Understand Audit: Meaning, Objectives and Types

An audit is an independent examination of financial statements, records, systems or compliance, done by a competent person, to express an opinion. The key words are independent, systematic and opinion. The auditor does not prepare the accounts. The auditor checks them and reports.

Why does audit exist? Owners, lenders, regulators and the public cannot check a company's records themselves. An independent person gives them reliable assurance. This builds trust in reported information.

The main objectives are:
- To express an opinion on whether financial statements give a true and fair view.
- To check compliance with applicable law and accounting standards.
- To detect and prevent errors and fraud.
- To assess the adequacy of internal controls.
- To give assurance to stakeholders and support decisions.

The scope depends on the type of audit and the terms of engagement. A statutory audit has a scope fixed by law. An internal audit has a scope set by management or the board. A secretarial audit looks at compliance with corporate laws, not at accounts.

Audits can be classified in three ways. By who requires it: statutory (required by law) or non-statutory (voluntary or requested). By who performs it: external auditor or internal team. By subject matter: financial, cost, secretarial, tax, management, forensic, operational or performance audit. Note that one company often faces several audits at once, each with a different purpose.

Key rules to remember

Core definition: Audit = independent + systematic examination → opinion; Use these three ideas to start any definition answer.
Statutory audit basis: Statutory audit = audit required by law, mainly the Companies Act, 2013; Done by an independent external auditor who reports to members.
Internal audit basis: Internal audit = review of operations and controls for management; Scope and reporting are decided by the board or audit committee. Internal audit is required for prescribed companies under the Companies Act, 2013.
Secretarial audit basis: Secretarial audit = check of compliance with corporate and other applicable laws; Required for prescribed classes of companies. Done by a practising Company Secretary.
Cost audit basis: Cost audit = verification of cost records and cost statements; Required for prescribed companies. Done by a cost accountant in practice.

How to solve Audit: Meaning, Objectives and Types questions

Use this method for definition, objective, scope or classification questions.

1Read the question and mark the command word: define, explain, distinguish, classify or discuss.
2Start with a one-line definition using independent, systematic and opinion.
3State the objectives as short points, linking each to a stakeholder need.
4Choose a classification basis (by law, by performer, by subject) and say so.
5Give each type with its purpose, who performs it and who receives the report.
6For comparison questions, use the same points on both sides: purpose, appointed by, reports to, scope, mandatory or not.
7Add one practical line, such as how the type applies to a company or to a CS.
8Close with a one-line conclusion tying the types to stakeholder assurance.

Quickest way: Definition, Objectives, Classification

When to use it: Use when time is short or the question asks for brief notes on audit or its types.

Write the definition in one sentence.
List four objectives in bullet form.
Name the classification basis.
Give one line per type: who, what, for whom.
Finish with one practical example.

Common mistakes in Audit: Meaning, Objectives and Types

Saying the auditor prepares the financial statements.
Students mix up accounting and auditing.
Fix: Write that management prepares the statements and the auditor examines them and gives an opinion.
Treating detection of fraud as the main objective of a statutory audit.
Many assume auditors guarantee that no fraud exists.
Fix: Say the primary objective is an opinion on the financial statements. Fraud detection is an important objective, but the auditor gives reasonable, not absolute, assurance.
Confusing internal audit with statutory audit.
Both examine records, so they look alike.
Fix: Compare on appointment, independence, reporting, scope and purpose. Statutory audit reports to members. Internal audit reports to management or the audit committee.
Calling secretarial audit a financial audit.
The word audit suggests accounts.
Fix: State that secretarial audit checks legal and procedural compliance, not the true and fair view of accounts.
Listing types without a classification basis.
Students memorise names only.
Fix: Open with the basis, such as by law, by performer or by subject, then place each type under it.
Writing section numbers or rules from memory without certainty.
Students want to show detail.
Fix: Quote a section only if you are sure. Otherwise state the rule in plain words.

Worked examples

Example 1

Explain the meaning and objectives of audit.

Show the solution

Define: an audit is an independent, systematic examination of books, records and systems by a competent person to express an opinion.
Stress that the auditor reports on statements prepared by management.
Objective 1: give an opinion on whether the statements show a true and fair view.
Objective 2: check compliance with law and accounting standards.
Objective 3: detect and prevent errors and fraud, giving reasonable assurance.
Objective 4: assess internal controls and suggest improvements.
Objective 5: give assurance to members, lenders, regulators and other stakeholders.

Answer: Audit is an independent examination ending in an opinion. Its objectives are a true and fair opinion, legal compliance, error and fraud detection, control review and stakeholder assurance.

Example 2

Distinguish between statutory audit and internal audit.

Show the solution

Purpose: statutory audit gives an opinion on financial statements. Internal audit evaluates operations, controls and risk management.
Basis: statutory audit is required by law. Internal audit is required for prescribed companies and is otherwise management's choice.
Performed by: an independent external auditor for statutory audit. An internal team, or an outside firm appointed by the board, for internal audit.
Reports to: members for statutory audit. Management or the audit committee for internal audit.
Scope: statutory scope is set by law. Internal audit scope is set by the board or management.
Timing: statutory audit is mainly periodic and year-end. Internal audit is continuous or periodic through the year.

Answer: Statutory audit is a legal, external, opinion-giving audit for members. Internal audit is an internal management tool focused on controls and efficiency.

Exam tips

Begin every answer with a crisp definition. It earns easy marks.
For distinguish questions, use matching points on both sides in a clear list.
Always give a classification basis before listing types.
Link each type to the CS role where possible, especially secretarial audit.
Avoid quoting section numbers unless you are certain.

Practice questions from Concepts of Various Audits

Audit: Meaning, Objectives and Types: frequently asked questions

What is the meaning of audit in CS Professional?

Audit is an independent, systematic examination of records, systems or compliance to express an opinion. The auditor checks what management has prepared. The opinion gives assurance to stakeholders.

What are the main types of audit?

Common types are statutory, internal, cost, secretarial, tax, management, forensic, operational and performance audit. They can be grouped by law, by performer or by subject matter.

How is statutory audit different from internal audit?

Statutory audit is required by law and done by an independent external auditor who reports to members. Internal audit is an internal review of controls and operations that reports to management or the audit committee.

Does an auditor guarantee that there is no fraud?

No. The auditor gives reasonable assurance, not absolute assurance. The primary responsibility for preventing fraud lies with management and those charged with governance.