The Audit ProcedureIn the modern-da

The Audit Procedure
In the modern-day global marketplace, investors and regulators know that when a publicly listed company does not publish its accounting statements on time, securities-exchange participants usually rely on audit reports to understand the company's operating affairs. To perform their tasks effectively, auditors use various procedures, such as tests of controls and account balances.
vestors and regulators know that when a publicly listed company does not publish its accounting statements on time, securities-exchange participants usually rely on audit reports to understand the company's operating affairs. To perform their tasks effectively, auditors use various procedures, such as tests of controls and account balances.


Types of Audit Procedures Example of Audit Procedures
Definition
An audit procedure is a systematic, methodical technique that enables a corporate reviewer to assess the adequacy of operating policies and production mechanisms. Review procedures require a combination of investigation skills and accounting acumen that auditors generally possess after years of training. External auditors, also known as financial reviewers, generally hold a bachelor's degree in accounting and are certified public accountants.

Scope
Auditors apply testing procedures to a variety of corporate mechanisms, including financial reporting and accounting systems, human resources policies, manufacturing processes and financial evaluation frameworks. To execute tests adeptly, corporate reviewers apply a set of regulatory guidelines, including generally accepted auditing standards and U.S. Public Company Accounting Oversight Board rules. Given that their primary task is to identify high-risk areas, it is the responsibility of auditors to select the most appropriate procedures.
Significance
Audit procedures are integral in operating and financial reviews because they provide the "evidential matter" necessary to draw conclusions. Evidential matter is proof on which an auditor bases an opinion. Establishing effective audit procedures requires the implementation of audit tools, such as project management software, content work flow applications and personnel scheduling software.

Tests of Controls
Testing corporate controls is critical for auditors. Control tests reveal to reviewers whether a company's operating processes are functioning effectively. A control is a set of rules that a department head implements to prevent fraud, error and technological malfunctions. Auditors test controls to ensure effectiveness and compliance with regulatory guidelines, industry practices and top leadership's stipulations. For example, an auditor reviewing the controls of a financial institution may verify that the firm's internal practices abide by U.S. Financial Institution Regulatory Authority guidelines

Analytical Procedures
Analytical procedures enable auditors to evaluate financial trends in a company's performance. Using percentages and ratios, auditors verify the accuracy of corporate data and compare previous performance data with current information. Reviewers apply analytical procedures to items in all financial statements, which include balance sheets and income statements.

Tests of Account Balances
Tracing the source of account balances can be a daunting task, especially for companies that have diverse, multiple operations in many countries. Auditors analyze account balances and ledger amounts, ensuring that the sum of journal entries matches account balances in financial statements. For example, an auditor may test the accounts receivable balance to ensure that individual customer receivables amounts add up to the total accounts receivable balance.