Audit Procedures & Techniques for an Internal Audit

by Marquis Codjia; Updated September 26, 2017
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Audit procedures and techniques provide specialists with a variety of tools to assess a business entity's operating environment. An Internal auditor uses such tools to ensure that controls, processes and policies are adequate and effective, and that they adhere to industry practices and regulatory mandates. An internal auditor also checks a corporation's financial statements to ensure that such reports are prepared in accordance with generally accepted accounting principles.

Operating Environment

An internal auditor determines how a company operates by asking segment or departmental employees, external auditors, accounting managers, human resources staff and risk specialists. A firm's operating environment describes management's ethical qualities, leadership style and business practices. An internal auditor also could determine how a corporation operates by evaluating industry trends and regulations. For example, an auditor may read a finance publication to understand how banks, insurance companies and hedge funds operate.

Review Controls

An internal auditor determines how a company's segment or departmental controls operate by reading prior audit reports or working papers and by inquiring from segment employees who perform such controls on a regular basis. An auditor applies generally accepted auditing standards (GAAS) to detect mechanisms, procedures, tools and methodologies that build controls. Such procedures may be easy or difficult to understand. An internal auditor could ask departmental experts or external consultants to explain complex procedures.

Test Controls

An internal auditor tests a business organization's controls, policies and guidelines to ensure that such controls are adequately designed and are operating effectively. Controls are mechanisms and methodologies a corporation's management puts into place to prevent losses due to error, fraud, theft or breaks in technology systems. Effective controls remedy deficiencies and problems properly. Controls are adequate if they provide detailed step-by-step procedures and guidelines for task performance, decision-making processes and lines of hierarchy.

Account Balances

An internal auditor analyzes account balances in a corporation's financial statements to evaluate whether such statements comply with generally accepted accounting principles (GAAP), industry practices and regulatory mandates. An auditor also tests account balances to verify "completeness" and "fairness". Complete financial reports include four statements: a balance sheet, a profit and loss statement, a cash flows statement and a statement of stockholders' equity. "Fair" means objective and accurate in accounting or audit parlance.

Account Details

An internal auditor performs tests of account details to ensure that financial statements of a business entity are not "materially misstated." Tests of account details and account balances are referred to as substantive tests. An auditor conducts such tests if a firm's controls and processes are not adequate or not functioning properly. "Material" means significant or substantial in accounting and audit parlance; a misstatement could result from human errors, intentional fraud or technology system weaknesses.

About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.

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