What is an Audit?

In general, an audit is an investigation of an existing system, report, or entity. It may be conducted by either an internal or external party, depending on the situation. There are many types of audits that can be conducted, as noted below:

Compliance audit. A compliance audit is an examination of the policies and procedures of an entity or department, to see if it is in compliance with internal or regulatory standards. This audit is most commonly used in regulated industries or educational institutions.
Construction audit. A construction audit is an analysis of the costs incurred for a specific construction project. Activities may include an analysis of the contracts granted to contractors, prices paid, overhead costs allowed for reimbursement, change orders, and the timeliness of completion. The intent is to ensure that the costs incurred for a project were reasonable.
Financial audit. A financial audit is an analysis of the fairness of the information contained within an entity's financial statements. It is conducted by a CPA firm, which is independent of the entity under review. This is the most commonly conducted type of audit, and is required for all publicly-held companies.

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Information Systems Audit. An information systems audit involves a review of the controls over software development, data processing, and access to computer systems. The intent is to spot any issues that could impair the ability of IT systems to provide accurate information to users, as well as to ensure that unauthorized parties do not have access to the data.
Internal audit. An internal audit is usually conducted by an in-house audit team, and is focused on control assessments, process assessments, legal compliance, and the safeguarding of assets. The team’s reports are sent to management and the organization’s audit committee, and may result in recommended changes being implemented.
Investigative audit. An investigative audit is an investigation of a specific area or individual when there is a suspicion of inappropriate or fraudulent activity. The intent is to locate and remedy control breaches, as well as to collect evidence in case charges are to be brought against someone.
Operational audit. An operational audit is a detailed analysis of the goals, planning processes, procedures, and results of the operations of a business. The audit may be conducted internally or by an external entity. The intended result is an evaluation of operations, likely with recommendations for improvement. It is an essential element of a campaign to increase efficiencies and reduce costs.
Payroll audit. A payroll audit is a detailed review of the information used to calculate employee pay. This includes an analysis of pay level authorizations, the amount of hours worked, overtime authorizations, and the amount of tax and other withholdings deducted from employee pay. The audit also examines the addresses to which compensation payments are sent. The intent of this audit is to ensure that payroll payments are properly authorized, calculated, and paid.
Tax audit. A tax audit is an analysis of the tax returns submitted by an individual or business entity, to see if the tax information and any resulting income tax payment is valid. These audits are usually targeted at returns that result in excessively low tax payments, to see if an additional assessment can be made. If the taxpayer disagrees with the outcome of a tax audit, there is an appeal process that may overturn the initial finding.