Companies can undergo financial audits annually.
The audit 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 auditing services requested by the owners of an outside accounting firm. Most companies perform financial audits once a year; operational and compliance audits are typically conducted as needed. The audit process generally includes three basic steps: planning, fieldwork and reporting. A fourth step, follow-up, may be necessary if the company fails the initial audit process.
Financial audits are required by state and federal regulatory agencies.
Planning is normally the first stage of the audit process. It usually starts with managing the company working with auditors on the type of auditing service needed by your company. Typical audits include banks, internal controls, fixed assets or complete financial commitments. Audit fees are often discussed at this point as well because each audit may have different levels of auditor involvement. Higher levels of audit services generally require more time and effort from auditors, resulting in higher fees. Once the audit work services are decided, the audit process usually moves to the field work phase.
Company management and auditors discuss the results of an audit during the reporting phase.
The fieldwork phase of the audit process is the practical review of financial and operating information by the auditors. The breadth and depth of field depend on the type of audit and the number of errors found during the fieldwork phase. Auditors select a sample of the company’s financial or business information and test it against the company’s accounting or business policies. Significant variations or failures typically result in auditors selecting a second sample to determine whether there are more errors. If there are more errors, auditors typically mark the entire company process related to the specific information as a failure. If the second samples are free of errors, auditors usually just note how many variations or flaws were found in the information. After the fieldwork phase is completed,
The fieldwork phase of the audit process is the practical review of financial and operating information by the auditors.
The reporting phase of the audit process usually involves auditors discussing their findings with company management. This meeting gives management a chance to challenge any findings and ask 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 the auditors are in agreement with the initial audit report, the auditors typically prepare the final audit report which can be issued to external stakeholders.
A company’s cash receipts may be examined during a financial audit.
The follow-up stage of the audit process is a corrective audit conducted on companies that fail to pass the audit score. Large or publicly traded companies often assign acceptable audit scores to each department in their operations. Auditors may require smaller companies to have a remedial audit, which is not uncommon; corrective audits are simply an extension of the process.