List of Audit Procedures

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Audits help firms improve operations.
Audits help firms improve operations. (Image: accounts image by Alexey Klementiev from Fotolia.com)

Auditors examine organizations' internal policies and procedures, human resource guidelines and key financial risks--such as market and credit risks--to verify that such policies are operating effectively and maintaining adequate risk levels. They also partner with accountants, tax analysts and corporate finance specialists to review financial reporting processes or systems, and to evaluate business performance.

Internal Controls Testing

Auditors review internal controls, mechanisms, and guidelines; evaluate control adequacy and effectiveness; detect operating performance trends and assess key business productivity ratios. These specialists also evaluate such controls to verify adherence to regulatory guidelines, governance of committee procedures and operating principles common in industries in which the firms are operating. Controls are effective when they correct weaknesses for which they are built; they are adequate when policies, step-by-step procedures and hierarchy lines are clear and appropriate for resolving problems. Auditors work with accounting, tax, human resources and compliance departments to recommend adequate and effective controls to segment managers.

Balance and Account Testing

Auditors conduct detailed tests of balances and accounts when areas under review do not have adequate operating controls in place or financial reporting processes and systems prepare inaccurate operational data. These experts review important accounts and account groups in financial statements and evaluate whether such accounts are reported in accordance with accounting principles generally accepted in industries in which the firms are operating. Financial statements include balance sheets, cash flow statements, profit and loss statements and owners' equity reports. For example, an analyst might verify that non-collectable customer balances are deducted from sales revenue before recording accounts receivable amounts.

Analytical Procedures

Analytical procedures help auditors detect and confirm key business indicators, financial statement relationships, operating trends and business performance. They work with budget and financial analysts to review historical data and compare such data to current and future--that is, expected--indicators. Auditors also focus on account relationships to verify accuracy and completeness in data reporting. For example, an analyst might compare current-year sales with an average sales amount for the five previous years to determine whether increases in current sales commissions are correct.

Risk Assessment

Risk management departments analyze and measure business risks inherent in firms' operations, transactions and corporate relationships. Audit specialists use complex math tools and procedures to appraise risk levels, recommend adequate remediation plans and follow up with entities' managers on identified deficiencies. Auditors focus on market, credit and operational risks such as weaknesses in technology systems, human resources processes and regulatory compliance programs. Market risk is the risk of loss from price variations. Credit risk arises from business partner defaults. Auditors rate areas reviewed as "low", "medium" and "high" and allocate more resources to segments considered "high-risk.”

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