Audit includes procedure of reviewing and assessing financial statements, based on which professional opinion is given on reality and objectivity of balances of assets, capital, liabilities and operating results.
Specifically, audit of financial statement includes reviewing documents, reports and other information, for the purposes of acquiring sufficient, adequate and reliable evidence for stating opinion as to whether financial statements of the audited entity truthfully and objectively reflect its financial condition, operating results and cash flows, and whether they are in compliance with accepted accounting principles and standards.
Audit of operations pursuant to the Law on State Audit Institution means acquiring sufficient, adequate and reliable evidence for expressing opinion on compliance and performance of the public funds beneficiaries’ operations. Compliance audit includes reviewing financial transactions and decision regarding income and expenses, in order to determine whether transactions in question have been executed in compliance with the law, other regulations and issued authorizations and for planned purposes.
Performance audit includes reviewing the manner in which budget funds and other public funds are spent, for the purposes of acquiring sufficient, adequate and reliable evidence for reporting whether the assets of the audited entity have been used in compliance with the principles of economy, efficiency and effectiveness, and in compliance with the planned goals.
In contrast to external audit, internal audit is an independent function established within organization that reviews and assesses its activities. Purpose of the internal audit is to help the members of the organization, particularly to assist the management in effective fulfillment of their obligations and responsibilities, providing analyses, estimates, recommendations, advices and information pertaining to activities of organization.
Scope of work of internal audit is important from the standpoint of financial statements. That fact is supported by the existence of International Audit Standard 610 “Using the Work of Internal Auditor”. Scope of work of internal audit primarily targets management of the enterprise. External auditors of financial statements may use the work of internal audit if they assess that such work could be useful.
In the audit planning process, the auditor should assess activities of the internal audit, in order to perform the audit more efficiently. The auditor may use certain parts of work of the internal audit in his report. Independence of the audit is of the utmost importance for quality of audit, which must be institutionalized through adequate organizational structure and regulations.