What Do Auditors Do?
Posted on Wednesday, September 20, 2017 Share
Ever wonder what your auditor is doing when they are going through all of that information that you’ve pulled for them?
First, before they even come to your office for fieldwork they have to plan the audit. As part of the planning process, they are required to perform a risk assessment in which they determine which areas of your organization are more likely to have errors. In order to do this, they have to obtain an understanding of your organization, your accounting system and your accounting policies. Everyone on the audit team must have an understanding of your organization so they have an engagement team meeting before every audit to discuss the organization under audit. They also have to determine materiality. It would take far too long and be too costly for your auditor to look at every single transaction of the organization. So they must come up with a threshold amount for testing transactions, known as materiality.
During fieldwork, auditors perform various types of procedures to form a basis for their conclusion on your financial statements. Some of the most common types of procedures are as follows:
- Inspection of records or documents (vouching transactions, reading board minutes, etc.)
- Observation (counting inventory)
- Confirmations (of bank balances, receivables, debt, etc.)
- Re-performance (walkthroughs)
- Analytical procedures
As your auditors are performing these procedures, they are looking for specific things relating to balances and transactions.
Existence and occurrence. Items actually exist. Transactions and events that have been recorded have occurred and pertain to the organization.
Completeness. All transactions and events that should have been recorded have been recorded.
Rights and obligations. The organization holds or controls the rights to assets and liabilities are the obligations of the organization.
Accuracy or classification. Amounts relating to recorded transactions and events have been recorded appropriately. Transactions and events have been recorded in the proper accounts.
Valuation or allocation. Items are recorded at appropriate amounts and any valuation or allocation adjustments are appropriately recorded.
Cutoff. Transactions and events have been recorded in the correct accounting period.
Hopefully this gives you a better understanding behind some of the questions and items requested from your auditor.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.