Governmental auditing refers to audits conducted to ensure that public resources are used efficiently, economically, and effectively while complying with laws and regulations. Governmental auditors often focus on three main types of audits:
1. Financial Audits: Ensure financial statements are presented fairly in accordance with the applicable financial reporting framework.
2. Compliance Audits: Assess whether organizations comply with applicable laws, regulations, and grant requirements.
3. Performance Audits: Evaluate the efficiency, economy, and effectiveness of government programs, often aligning closely with operational audits.
The U.S. Government Accountability Office (GAO) sets standards for governmental auditing, known as the "Yellow Book," which emphasizes accountability in the use of taxpayer funds.
Internal auditing is an independent and objective assurance and consulting activity designed to add value and improve an organization's operations. It evaluates:
1. Risk Management: Helps in identifying and mitigating risks.
2. Control Systems: Reviews internal controls to ensure compliance with policies and laws.
3. Efficiency and Effectiveness: Assesses the organization's operations to improve resource use and achieve goals.
Internal auditors are employed by organizations or external service providers. They frequently perform operational audits and report findings to senior management and the board to improve decision-making and governance.
Operational audits examine an organization’s processes to provide recommendations for improving resource efficiency, effectiveness in achieving objectives, and compliance with policies. Unlike financial statement audits, operational audits focus on enhancing operational performance rather than verifying financial accuracy.
These audits often align with governmental and internal audit functions, particularly in performance reviews and compliance assessments. Examples include audits of departmental operations, quality control, or governance structures.