Accounting Audit Process: A Step-by-Step Guide

Introduction

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.

What is an Accounting Audit & Why is it Important?

An accounting audit is an examination of the organization’s financial information which is conducted by an independent auditor with the aim to ensure that the information is represented fairly and accurately and in accordance with accounting standards.

Accounting audits play an important role in achieving transparency in business operations and increasing investors’ confidence in the business’ growth. 

Here are 10 major goals of an accounting audit:

1. To achieve transparency in business operations and drive accountability
2. To develop a practice of having an audit trail for each transaction
3. To have an independent and fair opinion on how the business works and delivers results
4. To ascertain the quality of financial statements
5. To deliver 360 feedback on the business process operations
6. To attract new and potential investors or stakeholders for the business
7. To ensure compliance with tax laws, regulations, and all applicable accounting standards like International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP)
8. To provide assurance to stakeholders that the financial statements are reliable
9. To identify areas for improvement in the company’s financial reporting and internal controls
10. To detect and prevent fraud and other financial irregularities

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Different Types of Accounting Audit

Every organization goes through two kinds of accounting audits – internal audits and external audits.

Step-By-Step Accounting Audit Process

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:

• 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.
• 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.

7-Step Accounting Audit Checklist

To perform an internal accounting audit, your team can follow these steps and ensure that your organization is ready for an external audit.

• Clearly define the focus of the audit and establish the questions you want the audit to answer
• Put together an audit team with the necessary skills and knowledge to conduct the audit effectively
• Create a list of all the documents, processes, and other variables you’ll need to review
• Collect information via research, employee interviews, and other methods
• Evaluate the organization’s system of internal controls to assess the risk levels of different functional areas
• Analyze the evidence collected during the audit procedures and evaluate its impact on the organization’s operations
• Prepare an audit report that summarizes the findings and conclusions of the audit

How Can HighRadius Help You Improve Accounting Audit & Compliance?

HighRadius’ AI-powered accounting software helps accounting teams achieve day zero month-end close, up to 90% reconciliation accuracy, and real-time anomaly detection and resolution.

It also enables accountants to show their work by adding attachments that are tagged to the financial close, account reconciliation, and anomaly tasks they are working on.

Task logs create an audit trail that shows all the changes made to each task in chronological order along with details of the user account (accountant) from where the changes were made.

With HighRadius, your accounting team can be audit-ready, anytime and focus on high-priority tasks rather than spending time preparing for audits.

FAQs

1. What are the 4 common phases in an accounting audit process?

A typical external or internal audit has four stages – planning, fieldwork, reporting, and follow-up. The accounting audit process is designed to ensure that the financial statements are examined thoroughly and accurately, providing stakeholders with confidence in the reliability of the financial information.

2. What are the 4 C’s of auditing?

The four C’s of internal audit are Compliance, Cybersecurity, Competitiveness, and Culture. Although, it’s important to note that these sets of 4 C’s are not universally defined or standardized.

3. What are the three key areas of auditing?

Financial statements, internal controls, and compliance are three areas of auditing. It’s important to note that the areas of focus in an audit can vary depending on the nature of the audit, industry-specific requirements, and the organization’s objectives.

4. What are basic audit principles?

Confidentiality, integrity, objectivity, independence, and competence are the basic principles that auditors must follow when conducting examinations. These principles help ensure that the audit is conducted efficiently, effectively, and with integrity.