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: What is Adverse Audit Opinion?27 Views

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Finance a la shmoop. What is an adverse audit opinion and you know deficiency

00:07

letter. Okay people this is not good you thought you had good grades but when [Report card is thrown onto the desk]

00:14

you got your report card your teachers had opinions adverse to yours... [Report card has bad grades in it]

00:19

They sent your parents a deficiency letter you know the one with all those [Mom looks shocked]

00:23

D's on it well when it's a company's audit that has similarly gone awry it's [Boss looks angry and employee looks shocked]

00:29

the nice way to say it well then it means they didn't count the beans

00:33

properly when they gave their financial reports to their investors or whoever

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the auditors were serving usually this implies that companies overstated how [Employee counting coffee beans]

00:41

profitable they really were or how well they were really doing so tens of

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thousands of investors if you know the company was public when this all [Big line of people waiting to invest]

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happened paid twenty seven dollars and 32 cents a share when with the real

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numbers the stock probably should have been trading more at like you know

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fourteen dollars and 27 cents a share big difference well basically an auditor

00:59

is saying that yours are not bread-and-butter misstatements no oops [Bean report with the numbers crossed out]

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it's more of a dude there were material ie important

01:09

mistakes and they were pervasive like everywhere math, science, english, history

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your failure it's no mystery that's how auditors talk really

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all right well then there are massive losses to massive numbers of people who hire [Protesters on a street]

01:21

massive numbers of lawyers who sue you.. massively.. in the world of finance an

01:25

adverse audit opinion is a bit like running over everyone's favorite dog [Car goes over a bump]

01:30

several times only you're the one who is likely dead meat [Guy reverses and runs the dog over again and the owner comes to fight]

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