Audits are an internal or external review of a company’s financial information, business operations or ability to comply with regulations or guidelines. Companies use audits for an internal assessment or as an assurance to outside stakeholders about the company’s business functions. Public accounting firms usually conduct audits for companies since professional accountants have expertise and knowledge in various financial and operational business practices. Performing these operations usually follows a standard process, although it can change to meet the needs of a client.
Collect a sample of financial or business information. Auditors do not test every document a company produces; they simply take a representative sample from each business process. The sample must be large enough to provide auditors with an accurate picture of the company yet small enough to complete in a short period of time.
Test the sample information. Testing a company’s information during an audit consists of completing math checks on the documents, reviewing the information on the document to ensure it is accurate and valid or re-computing the entire document.
Conduct employee interviews regarding their job or position. Auditors typically interview employees to determine their understanding of company processes. These interviews can also allow auditors to find breakdowns in a company’s internal controls or management review. Little company oversight can promote the opportunity for employee fraud and abuse.
Observe company processes. Many auditors will quietly observe how a company completes specific processes in their operations. This helps auditors to determine how effective and efficient each process is and if any waste occurs outside of the business owners or managers knowledge.
Write down and discuss variations with company management. Auditors typically note any and all variations or errors in a company’s processes or documents for later review with company management. The final meeting occurs prior to auditors issuing their final audit opinion.
Auditors should create a detailed audit plan prior to starting this process. The plan provides direction and ensures auditors do not get off track during the fieldwork phase.
Failing to maintain an objective and independent position during an audit can compromise the entire process. Individual auditors should carefully avoid compromising situations, such as offering accounting advice or conducting general accounting services during the audit. These actions can prohibit auditors from giving an honest opinion about the company.