About Basic Accounting Audits
Accounting audits are performed to identify potential risks associated with reporting financial data within certain departments or for an organization as a whole. Auditors are hired to deliver a professional assessment of a company's financial reporting processes and procedures, and the auditing process involves a thorough review of financial documents and accounting systems that are part of a company's infrastructure.
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Significance
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Analyzing financial statements and making sure that accounting procedures comply with the generally accepted auditing standards (GAAS) is an accounting framework that has been adopted by several countries. Accounting audits are systematic evaluations of accounting practices and procedures undertaken by an organization over a specific period of time; audits can help to identify whether a company is maintaining a high standard of ethics in its financial department, and whether its financial statements and reports are accurate.
Function
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Auditors are responsible for monitoring accounting processes and procedures and for ensuring that all financial statements meet certain criteria. The accounting audit process typically consists of several stages depending on the type of accounts being audited and the size of the company. Auditors may work in teams to audit several departments at once, and they must check all records thoroughly for compliance and accuracy.
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The Process
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The accounting auditing process consists of conducting a preliminary review of the company and accounts, making financial statement assertions, determining whether financial statements are following generally accepted accounting principles and guidelines, obtaining evidence of financial reporting and comparing the financial statement assertions with the established accounting criteria. The overall job flow consists of (1) submitting an announcement letter and conducting a preliminary survey, (2) performing transaction testing and creating an audit summary, (3) drafting a formal audit report and initiating an internal audit self-evaluation program and (4) performing a follow-up review approximately 1 year after the final report.
Features
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The preliminary review stage involves sending an announcement letter about the audit to the company's financial department and setting up an initial meeting to explain what the audit will entail. Auditors may also begin to gather relevant information about the company at this stage and request certain files, reports and other sources of financial documentation. The auditors can then create a set of financial statement assertions based on the financial statements and data they obtain. Assertions may include valuations of assets and liabilities, measurements of revenue and expense transactions, identification of recorded transactions and reports on all assets owned by the organization on a given date. Auditors can then determine if the company has been complying with generally accepted accounting principles by conducting in-depth fieldwork and research of the organization's general ledger and reporting system. This is followed by inquiries and investigations about specific financial transactions and reports.
Considerations
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The follow-up and review phases of the basic accounting audit are equally important as the fieldwork and research stages. Clients who are undergoing the audit must be informed of the outcome so that they can make necessary changes to their internal processes and procedures. And end-of-audit meeting with the lead auditor and the organization's financial managers allows the company to make final comments about its review and ask questions about the findings. In some cases, an auditing team may need to conduct further analysis and investigations to complete the project.
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