Auditing a Business

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How to Use Sampling to Test Internal Controls

Even a very small company produces voluminous records; no auditor could ever audit all the records available and still get the audit done in time for the data obtained to be relevant. Sampling allows you [more…]

How Large Should an Audit Sample Be?

For many audits, looking at 10 percent of the records that a company has produced during the past year may be just right. But that number isn’t always going to work. Your job as an auditor is to choose [more…]

What Types of Evidence Should You Sample During an Audit?

Because businesses generate so much paperwork, auditors can’t possibly sort through all of it. Instead you review a sample. You don’t include every type of client information in an auditing sample. Here [more…]

How Does Attribute Sampling Work?

Auditors choose from several types of sampling when performing an audit. Attribute sampling means that an item being sampled either will or won’t possess certain qualities, or attributes. An auditor selects [more…]

How Does Monetary Unit Sampling Work?

Auditors use monetary unit sampling, also called probability-proportional-to-size or dollar-unit sampling, to determine the accuracy of financial accounts. With monetary unit sampling, each dollar in a [more…]

How Does Classical Variables Sampling Work?

When using classical variables sampling, auditors treat each individual item in the population as a sampling unit. This method is most like the statistics classes you had to take in high school and college [more…]

How to Use Nonstatistical Sampling in Your Audits

You can choose your audit sample without using any type of specific statistical sampling method. The basic premise of statistical and nonstatistical sampling is the same. However, when performing an audit [more…]

How to Deal with Sampling Risk During an Audit

Although you can never guarantee that an audit is 100-percent accurate, the sample of records you choose is crucial to helping you achieve as much accuracy as possible. The choices you make when determining [more…]

Different Ways to Set Sample Size In an Audit

You can use several methods to determine the size of an audit sample. You can set the audit sample size based on tolerable and expected error or the previous year’s policy. You can use tables and software [more…]

Using Sampling to Test Account Balances During an Audit

You can use sampling to test the strength of a client’s internal controls, but you also use sampling to test account balances. The full name for this process in auditing lingo is sampling for substantive [more…]

What to Look for When You Audit Revenue

Revenue is important to the audit because it’s one of the two major business processes. (Purchasing is the other.) It’s also the major account in which you look for instances of financial misstatements [more…]

Using the Accrual Method to Record Revenue During an Audit

When you perform an audit, you check a company’s revenue recognition, which has to reconcile with generally accepted accounting principles (GAAP). This means, in most cases, that the straight-out accrual [more…]

Following the Flow of Revenue In an Audit

You can’t effectively or efficiently audit your client’s revenue transactions unless you understand how the client handles them. Each client you audit will probably approach each of the business processes [more…]

Assessing the Inherent Risk of Selling Goods and Services

When performing an audit, you look at revenue transactions. As the auditor you need to factor in any inherently risky circumstances that affect the revenue accounts. Generally, you look at four inherent [more…]

Confirming Accounts Receivable During an Audit

A major auditing issue with accounts receivable is whether the amount reflected in the customer’s subsidiary ledger reconciles with the correct customer balance. When you audit accounts receivable, you [more…]

Spotting Business Financial Statement Fraud

Financial statement fraud, commonly referred to as "cooking the books," involves deliberately overstating assets, revenues, and profits and/or understating liabilities, expenses, and losses. A business [more…]

How to Prevent Employee Fraud

Businesses lose huge sums of money each year to fraud committed by their employees. Small businesses and large businesses alike must establish strong internal controls to prevent employee fraud, whether [more…]

How Companies Classify Expenses

Your audit client’s expenses are all the costs it incurs while keeping its business open. Most likely, these costs are a combination of expenses you find very familiar, such as telephone and utilities, [more…]

How Companies Make Purchases

As an auditor you have to assess the purchasing procedures your client uses. An important part of the purchasing process is — no surprise! — paying for the purchase. Businesses and individuals alike have [more…]

Examining Purchase Procedures for Risk

At every step of an audit, you have to consider risks and their associated controls. Normally, purchases don’t have a lot of inherent risk because the process doesn’t involve any complicated or contentious [more…]

How to Assess Control Risk in Your Client’s Purchasing Procedures

When assessing purchasing control risk, auditors assume that control risk is directly affected by purchasing internal controls set in place by the business. The purchases process has control risk associated [more…]

How to Test Cash Disbursement Transactions

During your audit, you need to test management financial statement assertions. When you test cash disbursements during an audit, your first job is to figure out how your audit client pays its invoices. [more…]

Audit Procedures: Monitoring Personnel Records

Making sure your audit client is current with all areas of human resources-related compliance is one way to judge the competency of employees when you’re deciding whether to limit audit procedures. So [more…]

How to Test Payroll Expense Transactions

During an audit, testing payroll transactions includes sniffing out employees paid who shouldn’t have been and making sure valid employees are paid the correct amount. Auditors also need to make sure the [more…]

How to Test Employee Payroll Taxes

One way auditors test employee payroll-related items is to make sure the related employer expenses are properly accounted for on the books. It’s the auditor’s responsibility during the audit to sample [more…]

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