There are three main types of audits: external audits, internal audits and tax audits.

The term audit usually refers to the audit of financial statements. A financial audit is an objective examination and evaluation of an organization's financial statements to ensure that financial records fairly and accurately reflect the transactions it purports to represent. The audit may be conducted internally by the employees of the organization or by an outside firm of certified public accountants.

There are three main types of audits: external audits, internal audits and tax audits.

The external audit is usually performed by a certified public accounting (CPA) firm and generates the auditor's opinion, which is included in the audit report. An unqualified or clean audit opinion means that the auditor has not found any material misstatement after reviewing the financial statements. An external audit can include the review of financial statements and internal control of the company. On the other hand, an internal audit can be used as a management tool to improve procedures and internal control.

External audit

An audit conducted by an external body is very helpful in eliminating any bias in reviewing the company's financial position. The purpose of a financial audit is to ascertain whether there are any material misstatements in the financial statements. An unqualified or clean audit opinion reinforces the credibility of the financial data being accurate and complete for those who use the financial statements in decision-making. Therefore, an external audit can enable stakeholders to make better and wiser decisions about the audited company.

External auditors follow a set of standards different from those of the companies or organizations that employ them. The biggest difference between an internal audit and an external audit lies in the independence of external auditors. When the audit is conducted by a third party, the auditor can be frank with their opinions on the audited project (be it the company's finances, internal controls or system), without affecting daily working relationships within the company.

Internal audit

The internal auditor is employed by the company or organization for which the audit is conducted, and the resulting audit report is directly provided to the management and the Board of Directors. Although consultant auditors are not employed internally, they use the standards of the company they audit, rather than a separate set of standards. Such auditors are used when an organization does not have the internal resources to audit certain parts of its business.

The results of an internal audit are used for revamping management and improving internal controls. The purpose of an internal audit is to ensure the company’s compliance with laws and regulations, and to help maintain accurate and timely financial reporting and data collection. Another advantage it brings to management is the identification of weaknesses in internal controls or financial reporting prior to the external auditor's review.

Tax audit

The Inland Revenue Authority of Singapore (IRAS) will conduct random reviews of a company’s tax declaration. IRAS also has the right to require the company to conduct tax audits to verify the accuracy of taxpayer declarations and specific transactions. When it conducts an audit on a person or company, it usually has a negative connotation, but it does not necessarily indicate that transgressions have occurred.

Auditing relies on a set of principles to help make the audit an effective and reliable tool to support management policies and controls. Audits provide information to the organization so it can take the necessary action to improve its business performance.

1. Integrity: the basis of professionalism.

2. Objective reporting: the obligation to report truthfully and accurately.

3. Due professional prudence: apply diligence and keen judgment in the audit.

4. Confidentiality: information should be kept secure

5. Independence: the basis for fairness of audit and objectivity of audit conclusions.

6. Evidence-based: a reasonable method to draw reliable and repeatable audit conclusions in the systematic audit process.

An audit is a formal examination of the financial accounts of individuals, businesses or organizations. Internal audits are conducted by members of the same organization or enterprise, and external audits can be conducted by management agencies or government agencies.

1. Appointment of auditors

For a Singapore company that meets the requirements for audit, the directors of the company must appoint an auditor within three months after the establishment of the company. The term of office for the auditor shall be from the date of appointment of the auditor to the end of the next Annual General Meeting (AGM) of the company. Therefore, when a newly-established Singapore company appoints an auditor for the first time, the auditor will hold office until the end of the first AGM of the company. Then, during the first AGM, the company must appoint a new accounting entity (or re-appoint the same accounting entity) as the auditor of the company until the end of the next AGM. The auditor will remain in office until the end of the Company's subsequent AGM. If the directors fail to appoint a company auditor, any member of the company may apply to ACRA for the appointment of an auditor of the company. The removal of the auditors of the company may be determined by a resolution passed by special notice at an AGM.

To ensure the success of the audit, six specific steps (2-7 below) should be followed in the audit process:

2. Requesting for financial documents

After notifying the organization of the upcoming audit, the auditor usually requests for the documents listed in the initial audit checklist. These documents may include copies of the previous audit report, original bank statements, receipts and ledgers. In addition, the auditor may request copies of the organizational chart, minutes of meetings of the board of directors and committees, and copies of the articles of association and current rules.

3. Preparing an audit plan

The auditor reviews the information in the document and plans how the audit will be conducted. A risk workshop may be held to identify possible issues. An audit plan is then drafted.

4. Arranging public meetings

Senior management and key executives are invited to participate in the public meeting. The auditor introduces the audit scope, and the time frame for the audit is determined. Other time-related issues, such as scheduled vacations, are discussed and dealt with. Department heads may be required to inform staff that they may be interviewed by auditors.

5. Conducting site visits

The auditor uses the information collected from the public meeting to finalize the audit plan. Fieldwork is conducted by talking to staff and reviewing procedures and processes. Auditors test whether policies and procedures are followed, and evaluate internal controls to ensure they are adequate. Auditors can raise problems when they arise so that the organization has opportunities to address them.

6. Drafting the report

The auditor prepares a report detailing the results of the audit. The report includes mathematical errors, accounting issues, approved but unpaid payments and other discrepancies; other audit issues may also be listed. The auditor then prepares a commentary on the findings and suggests solutions to any problems.

7. Arranging a closing meeting

The auditor requests for the management’s response on whether they agree or disagree with the identification of the problems in the report, an action plan to solve all problems and the expected completion date of such a plan. At the closing meeting, all parties concerned discuss the report and the management's response. Any remaining problems should be addressed and solved at this closing meeting.