7 Audit Procedures

Be proud and say it loud if you’re an auditor, because unlike many journalists and political leaders, we can back up what we say with evidence! Auditors can be trusted to tell the truth. Hallelujah!

But how do we gather this convincing, truthful evidence? We can use one of seven types of audit procedures:

1. Inspection. Here we look at records, documents or physical assets to prove or disprove a statement or an assertion by the auditee. For instance, if we want to prove a payment was made to a vendor, we could look at a bank statement (a document either on paper or online) and find the check number, date and payment amount.
2. Observation. Here we watch a process or event occurring. For instance, if you want to prove recently laid-off employees are receiving job training offered through a state program, you could sit in on one of the classes and note how many students are in attendance.
3. External Confirmation. Here we ask an objective third-party to verify that something occurred. For instance, your auditee might show you an engineer’s report to confirm they cleaned up a hazardous waste site. Since engineering reports can be forged, you contact the engineering company to confirm they did indeed create the document.
4. Recalculation. Here the auditor runs the numbers themselves ensuring the formulas and calculations were applied correctly by the auditee. For instance, the auditee may have reported a specific dollar figure for police officers’ overtime pay. To verify the dollar figure, the auditor calculates the overtime pay based on pay rates and hours then compares the auditor’s result to the auditee’s figure.

   

5. Reperformance. Here the auditor verifies the auditee’s procedures by performing the procedures themselves. For instance, if the auditee asserts a password is necessary to access critical data, the auditor will try to access the data with and without the password.
6. Analytical Procedures. Here the auditor manipulates data to show trends or patterns. For instance, the auditor might sort all purchasing card transactions by user to find out who uses the card most often and for what purposes.
7. Inquiry. Here the auditor asks questions of the auditee or another party. The answers to the questions are considered testimonial evidence, which is more credible and convincing if it comes from someone other than the auditee.

The AICPA and GAO command auditors to describe the ‘nature’ of a procedure in audit documentation. Adding these seven to the description of your audit procedure will fulfill that command.

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