Audit Cycle

AAA

DEFINITION of 'Audit Cycle'

The accounting process that auditors employ in the review of a company's financial information. The audit cycle includes the steps that an auditor will take to ensure that the company's financial information is valid and accurate before releasing any financial statements. The audit cycle can call for different tasks to be performed at different times - for example, inventory can be counted in October and account receivables will be determined in November.

INVESTOPEDIA EXPLAINS 'Audit Cycle'

The audit cycle typically involves several distinct steps and may include the identification process, where the company meets with auditors to identify the accounting areas that need to be reviewed; the audit methodology stage, where the auditors decide how the information will be collected for review; the audit fieldwork stage, where the auditors test and compare accounting samples; and the management review meeting stage, where the findings are presented by the auditors to the company's management team.

RELATED TERMS
  1. Horizontal Audit

    An evaluation of one process or activity across several groups ...
  2. Financial Statements

    Records that outline the financial activities of a business, ...
  3. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  4. Accounting

    The systematic and comprehensive recording of financial transactions ...
  5. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  6. Certified Public Accountant - CPA

    A designation given by the American Institute of Certified Public ...
RELATED FAQS
  1. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  2. How often should a small business owner go through a bank reconciliation process?

    Small business owners should go through the bank reconciliation process at least monthly, and many business consultants recommend ... Read Full Answer >>
  3. What is the difference between recurring and non-recurring general and administrative ...

    The difference between recurring and nonrecurring general and administrative expenses can best be understood as the difference ... Read Full Answer >>
  4. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
  5. What can working capital turnover ratios tell a trader?

    A company's working capital turnover ratio is traditionally positively correlated with business performance. A high, or better ... Read Full Answer >>
  6. What is a negative write-off?

    A negative write-off is a write-off conducted by a company or accountant after deciding not to pay back an individual or ... Read Full Answer >>
Related Articles
  1. Insurance

    Evaluating The Board Of Directors

    Corporate structure can tell you a lot about a company's potential. Learn more here.
  2. Retirement

    Avoid An Audit: 6 "Red Flags" You Should Know

    Don't make yourself a target - steer clear of these attention-grabbing tax-filing practices.
  3. Professionals

    Examining A Career As An Auditor

    Stricter government regulations have put auditing professionals in demand.
  4. Fundamental Analysis

    Understanding Consolidated Financial Statements

    Consolidated financial statements are the combined financial statements of a parent company and its subsidiaries.
  5. Fundamental Analysis

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  6. Professionals

    What Does an Auditor Do?

    An auditor ensures that organizations maintain accurate and honest financial records.
  7. Fundamental Analysis

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.
  8. Economics

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  9. Economics

    Understanding Historical Cost

    Historical cost equals the original purchase price of an asset recorded on a company’s balance sheet.
  10. Economics

    What's Recorded in a Cash Book?

    A cash book is an accounting book that records all cash receipts and cash payments before they’re recorded in a business’s general ledger.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!