Audit Cycle

  

To every season... turn, turn, turn. Even in accounting...
The audit cycle represents the circular process accountants go through to audit a company's financial information. The cycle is typically represented as having between five and seven steps, depending on how the stages are delineated.
(Side question: are going to sleep and waking up two different things? Or two sides of the sleeping process? That's the kind of distinction that comes up in figuring out how many steps there are in the audit cycle. Everyone agrees on the general path of the cycle, but some sources break the steps down more finely.)
Generally, the process works like this:
1. Identify what's being audited
2. Figure out what standards to use in order to judge the situation
3. Collect data
4. Compare the data with the agreed-upon standards
5. Implement change (if necessary)
Some sources then include the step of "re-audit" which basically restarts the cycle.

Related or Semi-related Video

Finance: How does a board of directors f...27 Views

00:00

Finance a la Shmoop! How does a board of directors function?

00:06

All right, well structurally, the Board of Directors has really one function, after

00:11

it is elected by a vote, of the common shareholders, of the company. The board of

00:16

recruits, then hires the CEO and that's not necessarily easy. Because, most

00:23

of the good CEOs, you actually want, are already ensconced in high-paying jobs, [man being offered money]

00:29

from which they have to be bought away. Picking the right CEO, is the big

00:33

roulette wheel bet, the board makes. Is the CEO good, or bad, or ugly and yeah the

00:40

CEO can be all three. After being hired the CEO then hires everyone else, more or

00:46

less. In a public company, the board divides into committees, to advise and

00:51

oversee many of the little processes. There's audit committee people and

00:56

nomination and government committee people and Compensation Committee people.

01:01

In large companies there are also, often subcommittees, that focus on narrow

01:05

things, like technology, or politics and lobbying and, or the environment. You know, if [oil drill with man and duck]

01:11

you work for a big polluter. Well another big element of board value-add, revolves

01:16

around, strategy. Are we the high cost, high value company, or are we the low cost,

01:23

Walmart desk provider? That is, are we Pirates of the Caribbean, or are we La La

01:29

Land? What other strategic issues are we fighting? How do we get into China and [world map]

01:34

Russia and get out of Somalia? So yeah, that's strategy. How does the

01:39

board cover its primary obligations, in providing a fiduciary duty, to the

01:45

shareholders, who elected them? Is the board governing fairly and equitably?

01:50

Yeah, how do they do that? Well they just basically pay attention, right? Are

01:54

company policies racist, or gender biased, or ageist?

01:59

Which is illegal everywhere, except Silicon Valley in Hollywood. Are all the [director and actress]

02:04

right controls inspected, like audit, hiring, firing, policies and our

02:09

companies casual Fridays, have they gotten to just to casual? Is that a board item?

02:15

Yah, alright, next meeting. So yeah, that's the gist, hire the CEO, form

02:19

committees and of course they're also in charge of bagel Thursdays. [man in panda suit, bagels falling from sky]

Up Next

Finance: What is Adverse Audit Opinion?
27 Views

What is Adverse Audit Opinion? An adverse audit opinion signals that an auditor has found flaws in a company’s financial statements. Adverse audi...

Finance: What is non-voting stock?
4 Views

What is non-voting stock? Non voting stock is a class of stock that carries no voting rights on agenda items subject to shareholder vote. While som...

Finance: What is Cumulative Voting?
6 Views

What is Cumulative Voting? When public companies have ballots for shareholders to vote for board members, shareholders have a total number of share...

Finance: What is a proxy?
8 Views

What is a proxy? Proxy statements are documents that are sent to shareholders of public companies that contain detailed information on agenda subje...

Find other enlightening terms in Shmoop Finance Genius Bar(f)