Difference between Audit and Inspection

Audit and Inspection

Difference between audit and inspection

The terms ‘audit’ and ‘inspection’ are sometimes used interchangeably. However, an inspection is not the same as an audit. The tools used in them might be similar to some extent, but the processes and manner of conduct are very different.

In an inspection, companies generally use a checklist format having yes/no answers. Several questions are asked and items on the checklist are evaluated to see whether compliance in a particular area is satisfactory or not. For example, inspections may be performed by businesses to see how well their safety management systems are doing. The data that is procured during inspections are used by companies to determine if their safety & health standards are being met or whether they need improvement. Likewise, equipment or machinery inspections are also carried out to determine the efficacy of equipment in running factory operations. They help to identify hazards.

Inspections focus on a single item or process in an organization, but audits are more detailed and in-depth. Audits normally look at an organization in its entirety from start to finish, reviewing all events and transactions carried out during a particular period. They have a larger goal of assessing a company’s internal control procedures, financial and/or operational procedures, and business records. They are done through a review of documents, observation of tasks, risk assessments, interviews with employees and outside parties, checking of legal compliance with regulatory norms, etc.

An auditor goes deeper into business processes to check the degree of conformity with acceptable practices. It is seldom performed with yes/no questions, rather the tools are designed in such a way that auditors ask open-ended questions to arrive at a more detailed conclusion. Audits tell you which part of the process is out of compliance, needs improvement, and how to work on it. The objective is to locate discrepancies in a business and to give an opinion on the genuineness of financial statements. Many types of audits can be done such as financial audit, internal audit, cost audit, management audit, secretarial audit, tax audit, or others.

As opposed to audits that take several days or months, inspections are completed in a very short span of time say one hour or a few minutes. Moreover, the findings of an inspection are easy to fix. The questions are straightforward so that the problem, if any, can become easily evident and the management can solve it. But audits do not come with such straightforward solutions. This is so because audit findings are frequently based on regulatory compliance, written documentation, and an overall assessment of internal controls.

Some of the other points of distinction between audit and inspection are stated below:

1. Audits are conducted less frequently than inspections.

2. Audits are normally conducted by a third party completely external to the company. Inspections, on the other side, are done by internal staff.

3. An inspection applies to a single process or equipment. But audits have a larger scope and review a company’s overall business and financial performance. They even check whether proper inspections are regularly conducted or not.

4. Inspection relies heavily on quantitative fundamentals to get a snapshot of an organization’s operational functions, whereas auditing is more concerned with the overall and detailed functioning of an organization and is qualitative too.

5. During an on-site inspection, for example, the inspecting officer will only note the number of missing pieces of equipment, whereas, during an audit, the person in charge will try to determine the reasons for the missing pieces of equipment by using well-informed data and documentation.

6. An inspection is typically carried out using a checklist system based on pre-determined notions. But an audit is not restricted to checklists.

7. The primary function of inspection is to identify potential hazards with the ultimate goal of preventing workplace accidents, illnesses, and other problems.

8. The majority of inspections are focused on the workplace, work equipment, and work activities. An audit, on the other hand, focuses on the entire management system.

9. Audits are commonly more elaborate and time-consuming because they go through the investigation process in stages.

10. An audit helps to keep a moral check on the company’s employees as it detects frauds and errors.   

11. An audit is valuable to investors and external parties as well. It can provide transparency to shareholders by ensuring that the company is run in their best interests and highlighting any matters that may have occurred but were not brought to their attention.

12. An audit is more thorough; it will go over your records and ensure that you have done everything correctly in the past. An inspection only considers what is happening right now.

Difference between audit and inspection

Conclusion

Both audits and inspections are frequently used by companies to evaluate their performance. However, it must be borne in mind that the quality of an audit or inspection is influenced by the tools used to perform them and also by the people performing them. If your tools or questions are not appropriate enough to give you the relevant data needed in making improvements or evaluating compliance, it won’t serve any purpose. Similarly, if the inspectors and auditors tend to overlook items and don’t exercise the appropriate amount of integrity to point out a problem, the results may not be valid.


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Ruchi Gandhi

The author enjoys to write informational content in the domain of company law and allied laws. She takes interest in doing thorough and analytical research on legal topics. She is a CA along with MBA (Fin) and M. Com.

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