What Is an Audit MethodologyWritten by hema
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It defines that set of procedures and methods that are involved to assess the company’s financial position. The company may use either internal audit or external audit system to review its finance and revenue from time to time. Audits are used to find out the precision and legality of the financial statements of any organization. These audits need not be only for financial numbers, but sometimes can be non financial as well. For example business risk audits which tests the conformity with regular operating procedures.
Audit methodology consists of four sections:
- Initial risk assessment:
In this section usually an interview with the management happens, which allows them to conclude the span of audit methodology. It is here that the management discloses its highest risk areas. After this initial interview the auditors write their notes and define the scope of audit. This is usually a written agreement; any change in audit methodology will have to be properly amended in view of the original agreement. Once this stage is over then they come to the planning stage.
- Planning Stage:
In this stage the company introduces the auditors to each area of their business. Any kind of additional flaw found will be added to the original agreement. Here the company also introduces its key employees and their responsibilities so that it might help the auditors in their planning. In this way it protects the reliability of the company.
- Testing Stage:
This is the center phase of the audit methodology. Here the auditors review all the financial statements to find out if there is any deviation from GAAP that is generally accepted accounting principles or if the company any standard accounting procedures in place. In this testing phase a small sample is taken and is tested by auditors separately. If any discrepancy is found in the first sample itself then the auditors may test another sample or may put it in words that it failed to meet the company standards. Once this is completed the auditors move to the final stage.
- Exit Meeting:
This is basically the wind up stage of audit methodology. At this stage the company management and auditors evaluate the results of the audit. Usually a formal audit report is filed by them within a week or so of the exit meeting. Organization also has an option to fight out if audit findings during this stage are minor when compared to the company’s cumulative operations.
Audit methodologies are usually used for IT audits, risk analysis, health companies, security companies etc. Audits are necessary to maintain a general standard amongst all organizations.