The Audit Process: What to Expect during a Financial Statement Audit

At MGA, our assurance team can provide multiple benefits to business owners and management. We can help uncover errors in your financial statements, identify material weaknesses in your internal controls, and increase the level of confidence lenders and other stakeholders have in your financial reporting. 

But many companies are unclear about what to expect during a financial statement audit. Here’s an overview of our five-step process.

1. Accepting the engagement
2. Assessing risk
3. Planning
4. Gathering evidence
5. Communicating the findings 

Read on to learn more about how the MGA assurance team can bring you the experience and expertise you need as you go through the audit process. Remember, it is more than just an audit. It is a time to get a clear picture of your business, your policies and procedures, and how well you are following them to the standards you need.

The Audit Process: Here Are the Details You Need to Know

Accepting the engagement

Once your company has selected an audit firm, you must sign an engagement letter. Then your auditor will assemble your audit team, develop a timeline, and explain the scope of the audit inquiries and onsite “fieldwork.”

Assessing risk

The primary goal of an audit is to determine whether a company’s financial statements are free from “material misstatement.” Management, along with third-party stakeholders that rely on your financial statements, count on them to be accurate and conform to U.S. Generally Accepted Accounting Principles (GAAP) or another accepted standard.

Auditing rules require auditors to assess general business risks, as well as industry- and company-specific risks. The assessment helps auditors 1) determine the accounts to focus audit procedures on, and 2) develop audit procedures to minimize potential risks. 

Planning

Based on the risk assessment, the audit firm develops a detailed audit plan to test the internal control environment and investigate the accuracy of specific line items within the financial statements. The audit partner then assigns audit team members to work on each element of the plan.

Gathering evidence

During fieldwork, auditors test and analyze internal controls. For example, they may trace individual transactions to original source documents, such as sales contracts, bank statements or purchase orders. Or they may test a random sample of items reported on the financial statements, such as the prices or number of units listed for a randomly selected sample of inventory items. Auditors also may contact third parties — such as your company’s suppliers or customers — to confirm specific transactions or account balances.

Communicating the findings

At the end of the audit process, your auditor develops an “opinion” regarding the accuracy and integrity of your company’s financial statements. In order to do so, they rely on quantitative data such as the results of their testing, as well as qualitative data, including statements provided by the company’s employees and executives. The audit firm then issues a report on whether the financial statements 1) present a fair and accurate representation of the company’s financial performance, and 2) comply with applicable financial reporting standards.

Reasonable Expectations

Understanding the audit process can help you facilitate it. If your company doesn’t issue audited financials, this understanding can be used to evaluate whether your current level of assurance is adequate — or whether it’s time to upgrade. Reach out to your team at MGA for additional information. We’re here to help.

Learn more about the assurance services we offer, like uncovering errors in your financial statements, identifying weaknesses in your internal controls, and providing confidence in your financial reporting.

You will find that we take the complex and make it simple.

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