Accounting & Audits

Auditors – external or internal – are the referees of our financial system. They play an essential role in ensuring that an organization adheres to global accounting standards and prevents fraudulent activities. While the accounting process helps present the company’s financial position, audits help ensure the financial reports are accurate and compliant for the company’s clients, customers, shareholders, and other stakeholders.

Step-By-Step Accounting Audit Process

Business people working with laptop in an office

The external accounting audit process differs based on the size of the organization, the complexity of the audit, and any specific requirements or regulations applicable to the industry or jurisdiction. Here are 6 common steps that are followed globally for external audits:

Analyzing the findings and preparing an audit report

Based on his examination, the auditor drafts a report where he mentions instances of any proof of fraud, financial mismanagement, corrected reports, wrong processes or accounting policies, etc. he found during the audit. If he has any suggestions for improving the internal controls of the organization, he includes them in this report.

Planning and Goal-Setting After engaging an external auditor, the organization sits with them to discuss the level of engagement, process, and objectives of the auditing process. They also set a timeline for the audit so that the organization can prepare by conducting an internal audit.

Requesting for financial information After the audit plan gets a go-ahead, the auditor draws up a list of financial documents that he needs to conduct the audit. The audit may ask for documents like previous audited reports, bank statements, ledgers, receipts, board meeting minutes, organizational charts, etc. These documents help the auditor gain an overview of the organization’s overall business operations.

Performing audit and on-site examination Once the auditor receives all required documents, he starts executing the planned audit procedures, which may include examining financial records, conducting interviews, testing internal controls, and verifying transactions. The purpose is to gather evidence to support the auditor’s opinion on the financial statements. He examines data samples in the transaction records for anomalies. This is a test of how well the organization’s internal controls are working.