What is an Audit Methodology? Definition, Benefit, 3 Facts

An Audit Methodology is a technique used to examine the current state of your company’s accounting processes, and make adjustments where necessary.

It provides for a more comprehensive look at how your company performs its financial reporting, as compared to a more limited examination done by your accounting department.

What is an Audit Methodology?

Audit methodology is a specific set of methods or procedures used to evaluate the financial and commercial risk of a corporation. Internal and external audits can be used to examine particular data pertaining to various firm activities.

What is an Audit Methodology?

Audits often verify the correctness and veracity of financial data. Some audits, however, focus on non-financial concerns.

For instance, business risk audits evaluate departmental adherence to standard operating procedures. Variances discovered during the audit might have a substantial influence on the company’s ability to continue operations.

What Do a Audit Methodologies Consist Of?

Typical audit procedures include a preliminary risk assessment, a planning phase, a testing phase, and a debriefing session.

A Preliminary Risk Assessment

Typically, an initial risk assessment begins with an interview with management. This meeting often dictates the scope and depth of the audit process, since firm management typically discloses the biggest risk areas of their business.

Typically, following the meeting, auditors gather their notes and draft a written agreement describing the audit’s scope.

Changes to the audit technique may need the addition of a separate amendment to the original written agreement. Upon completion of the initial risk assessment phase, auditors often go on to the planning step.

What is an Audit Methodology?

The Planning Stage

The planning phase of audit methodology introduces auditors to each audited business sector. During this phase of the audit, auditors frequently do walkthroughs to acquaint themselves with firm workers and their unique roles. Additional flaws uncovered by auditors may be added to the audit’s initial scope.

Typically, company management introduces auditors to department managers, so allowing auditors to conduct interviews without undue influence.

This safeguards the credibility of the audit technique. Typically, the testing step commences once the audit planning evaluation has been completed.

The Testing Phase

Testing is the meat and potatoes of the audit methodology procedure. Auditors regularly examine financial data or company processes for breaches of the Generally Accepted Accounting Principles (GAAP) or internal operational standards. Auditors often pick a sample from big groupings of information and examine it independently.

If there are an excessive number of failures in the first test sample, the audit technique may ask auditors to test an additional collection of information or simply record the original sample as a failure or violation of corporate standards. Upon completion of the testing phase, auditors often meet with firm management.

What is an Audit Methodology?

The exit meeting

The departure meeting signifies the conclusion of the audit approach. This meeting provides an opportunity for auditors and corporate management to examine audit results and address any significant violations or failures detected during the testing phase. Formal audit opinions are typically submitted within one week of the conclusion of the audit.

Companies may also opt to contest audit findings during the departure meeting if the infractions are small or inconsequential in relation to the company’s overall operations.

Depending on the audit methodology, organizations may be required to undergo a second audit if too many infractions are identified during the initial audit.

How audit methodologies will change in the future

Alan W. Anderson, CPA, founder of ACCOUNTability Plus LLC, disagrees with the question “What is the audit company of the future?” yet, “What will be audited in the future?”

From preparation through fieldwork to the final set of financials, auditing is typically a race against the time.

It may become such an exercise in filling out forms and checklists that “people who want to think and learn, leave,” Anderson, who conducted a session on the audit firm of the future at Thursday’s AICPA ENGAGE conference in Las Vegas, said in a preconference telephone interview.

Anderson presented new audit approaches that will assist companies in their transition from the existing state of audit to audit firms of the future. Auditing’s fundamental technique has remained mostly unchanged for decades.

Since the beginning of auditing, auditors have created paper-based versions of the tasks they perform today. In the future, practitioners will have more opportunity to supply customers with insights that will assist them in constructing stronger enterprises.

What is an Audit Methodology?

“It is not surprising that the audit is viewed as a commodity when the firm does not use any of its business knowledge to generate insight. Because how helpful is a financial statement filed on May 24, 2017 for the 31st of December, 2016?” Anderson stated.

In Anderson’s view of the future of audit, “we’re making space and time for insight. And, by the way, insight not only offers value to the customer, but also results in a more effective audit.”

The virtual audit

The work that is typically performed in the field is performed virtually in the office, while the wrap-up phase is performed in the field.

Instead of flying to a client’s office, auditors examine the client’s documents using information submitted through a secure portal at their own office.

After completing the normal activities, engagement leaders visit the customer for the last step. Issues requiring judgment are resolved, and questions presented during the in-office section of the audit are answered.

Anderson described two office fieldwork models. One option is the team method, where staff members are allocated to a single audit at a time and operate in an office with many workstations as a team.

The service-center concept is still another model. Staff members are allocated a certain duty to perform for several clients. For instance, one person’s employment may involve auditing the cash of many clients.

These staff are not required to have a degree in accounting; those with expertise as billing clerks may be ideal for this repetitious and thorough task.

Hiring dedicated personnel for a service center prevents the loss of efficiency that occurs when skilled accountants move on to more difficult jobs.

What is an Audit Methodology?

Continuous auditing

Continuous auditing entails constant monitoring throughout the year to verify transactions are appropriately recorded and flowing to the income statement. At the end of the accounting period, the balance sheet acts as an anchor.

A small number of companies are doing this by conducting quarterly mini-audits. Frequent, smaller audits balance the firm’s workload and alleviate the time strain that occurs during the hectic season.

These companies have a smaller workforce, and their employees may not need to work as many hours. This can be used with approaches for virtual auditing.

Errors and irregularities may be corrected immediately, as opposed to months after the conclusion of the fiscal year. When events are mentioned shortly after they occur, clients remember them better.

Constant engagement between the audit team and the client enables team members to have a more thorough understanding of the business. According to Anderson, “knowing the customer’s company is the key to providing value to the client, helping them develop and make things better, as well as generate more revenue and reduce expenses. We should be doing just that.”

Data analytics

Future audits, according to Anderson, will be based on data analytics. Auditors review a client’s transactions using current technologies in order to identify patterns. For instance, a client whose on-time payment history suddenly deteriorates to 10 days late may indicate a potential risk of default.

Data analytics and analytical review should not be confused. Analytical review techniques combine a client’s data to assess overall patterns, such as inventory turnover fluctuations. In order to assess inventory turnover for each of the client’s clients, data analytics examines the specifics of transactions.

What is an Audit Methodology?

“Using big data and data analytics will unquestionably serve as a springboard for the accountant as the client’s auditor to deliver greater insight,” said Anderson.

Moving to the audit firm of the future

According to Anderson, the ability to communicate and collaborate remotely with clients is essential. Being familiar with this technology “will prepare you for future audits.

As a result of the application of artificial intelligence and analytics in the audits of the future, a significant portion of the checking and double-checking will be performed internally.”

Utilizing technology to deliver more insights increases the value of audits for audited organizations. To modify workflow patterns and firm culture, however, will take the time and dedication of company executives.

The potential return is substantial. Clients will be more satisfied with audits that provide them with a deeper understanding of how to achieve their company objectives.

Employees will be happier in a culture that rewards creativity and critical thought. The audit will evolve from a commodity-like need to a great opportunity for business enhancement.


An audit methodology is a tool that an organization can use to help it improve its processes and procedures.

An audit is usually a manual review where an auditor takes a look at what is going on and verifies whether or not the procedures are being followed and working properly.

Audits are normally conducted to make sure that people are not doing things incorrectly and that there is a good record keeping system in place. Audits are also used as a training tool. Auditors look at the work and then tell employees how they can improve.


The Audit Methodology: Steps of an Audit continued…
  1. Receive vague audit assignment.
  2. Gather information about audit subject.
  3. Determine audit criteria.
  4. Break the universe into pieces.
  5. Identify inherent risks.
  6. Refine audit objective and sub-objectives.
  7. Identify controls and assess control risk.
  8. Choose methodologies.
  9. Budget each methodology
  10. Formalize the audit program
  11. Perform & document audit methodologies
  12. Conclude
  13. Draft findings
  14. Finalize report
Essentially there are four different audit approaches: the substantive procedures approach the balance sheet approach the systems-based approach the risk-based approach. This is also referred to as the vouching approach or the direct verification approach.
an independent, objective assurance and consulting activity designed to addvalue and improve an organization’s operations. It helps an organization. accomplish its objectives by bringing a systematic, disciplined approach to. evaluate and improve the effectiveness of risk management, control,…
Introduction. The audit is considered a very important step that helps develop a much-needed trust in the market. It helps to establish that there are no material misstatements in the company’s financial statements, and the company is free and fair from all types of fraud.
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