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.