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The auditing process is the specific steps used in a financial, operational or compliance audit. The steps may vary depending on the company and the type of audit services company owners requested from an external accounting firm. Most companies have financial audits once a year; operational and compliance audits are normally conducted on an as-needed basis. The auditing process usually includes three basic steps: planning, fieldwork and reporting. A fourth step, follow-up, may be needed if the company fails the initial audit process.
Planning is typically the first stage of the auditing process. It usually begins with company management working with auditors on the type of audit service needed for their company. Typical audits include bank, internal controls, fixed asset or full financial engagements. Audit fees often are discussed at this point as well because each audit may have different levels of involvement by auditors. Higher levels of audit services usually requires more time and effort by auditors, resulting in higher fees. Once the audit engagement services are decided upon, the auditing process usually moves to the fieldwork phase.
The fieldwork phase of the auditing process is the hands-on review of financial and operational information by auditors. The breadth and depth of the field depends on the type of audit and the number of errors found during the fieldwork phase. Auditors select a sample from the company’s financial or business information and test it against the companies accounting or business policies. Significant variances or failures typically result in auditors selecting a second sample to determine if more errors exist. If more errors exist, auditors normally mark the company’s entire process relating to the specific information as a failure. If the second samples have no errors, auditors often just notate how many variances or failures were found in the information. After the fieldwork phase is complete, auditors generally begin the reporting section of the auditing process.
The reporting phase of the auditing process usually involves the auditors discussing their findings with company management. This meeting gives management a chance to dispute any findings and request auditors to reconsider items found during the fieldwork phase. Auditors may request additional information from management during this meeting to complete their documentation requirements. Once company management and auditors are in agreement with the initial audit report, auditors normally prepare the final audit report that may be issued to outside stakeholders.
The follow-up stage of the auditing process is a remedial audit conducted on companies that fail to achieve a passing audit score. Large or publicly-held companies usually have assigned acceptable audit scores for each department in its operations. Smaller companies may regularly be required by auditors to have a remedial audit, which is not unusual; remedial audits are simply an extension of the process.
A lot of people -- primarily chief financial officers -- get their feelings hurt during this process. After all, auditors question everything and the folks handling the money can take routine questions the wrong way.
The best way to deal with an auditor is to simply realize the person doing the audit is simply doing a job. It's nothing personal -- they are there to make sure everything is on the up and up. If there's no impropriety in handling the money, there's nothing to be concerned about.
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