What is an 'Audit Cycle'

An audit cycle is 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.

BREAKING DOWN '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.

Firms, particularly publicly traded firms, may employ outside accounting firms to perform audits and sign off on the audited company's financial health. Firms that perform these services are firms such as E&Y, KPMG and PwC. Being able to produce audited financial statements is a large part of certifying a publicly traded firm's financial health and supporting investors' need for information regarding the company financials.

RELATED TERMS
  1. Generally Accepted Auditing Standards ...

    Generally Accepted Auditing Standards are a set of guidelines ...
  2. Internal Audit

    The examination, monitoring and analysis of activities related ...
  3. Continuous Audit

    Continuous audit is an internal process that examines accounting ...
  4. Field Audit

    A field audit is a comprehensive tax audit conducted by the Internal ...
  5. Internal Auditor

    An internal auditor is someone who provides independent and objective ...
  6. Auditor

    An official whose job it is to carefully check the accuracy of ...
Related Articles
  1. Taxes

    Your Chance of a Tax Audit Is the Lowest in Years

    The risk of a tax audit, for you or your company, is the lowest in years, but that doesn’t mean you should skirt the law or stop keeping records.
  2. Personal Finance

    Financial auditor: Job details and average salary

    Discover what it means to hold a financial auditor position, including job duties, education and training, required skills and expected salary.
  3. Managing Wealth

    Internal Auditor: Job Description & Average Salary

    Learn about what the job of internal auditor entails, as well as the median salary, education and certifications required and future career path.
  4. Personal Finance

    Career advice: Accounting versus auditing

    Understand the distinctions between accounting and auditing, and learn what each offers new graduates in terms of salary, job security and daily life.
  5. Insights

    Internal Auditor: Career Path & Qualifications

    Find out what kind of work internal auditors do in large organizations, and learn more about how to get started working in the field.
  6. Taxes

    Audit Stories You Won't Believe

    Take comfort: Even if you do get audited, you'll have an easier time that these unlucky taxpayers.
  7. Personal Finance

    A Day In The Life Of An Auditor

    If you like the idea of examining and attesting to a company's financial performance for a living, a career in auditing might be right for you.
  8. Managing Wealth

    Make $1 Million? Expect an Audit

    If you make $1 million or more, the IRS has its eyes on you. Here's what you can do about it.
  9. Taxes

    How To Appeal Your IRS Audit

    The auditor's review isn't always the last word. Many taxpayers who are audited can successfully appeal their audits and save thousands of dollars.
  10. Tech

    An Inside Look At Internal Auditors

    Find out why these number crunchers are part of every chief officer's dream team.
RELATED FAQS
  1. What are some examples of inherent risk?

    Read about the nature of inherent risk in preparing and executing financial audits, including some common situations that ... Read Answer >>
  2. How is inherent risk assessed by an auditor?

    Learn how CPA auditors assess the levels of inherent risk of different audit areas that they use to design the procedures ... Read Answer >>
  3. Who enforces GAAP?

    Take a deeper look at the private enforcement mechanisms behind the generally accepted accounting principles for American ... Read Answer >>
  4. What are the main advantages and disadvantages to the cost accounting method?

    Read a brief overview of the main advantages and disadvantages of the cost accounting method as it relates to business analysis ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center