Audit season is a critical time for finance professionals as organizations aim to ensure their financial statements are accurate and compliant. For auditors, gathering substantive evidence is a central part of this process, allowing them to provide an informed opinion on an organization's financial standing.
If you're preparing for an audit—or simply curious about how the process works—this guide dives into the key methods auditors use to verify account balances and transactions. From analyzing original source documents to recalculating financial data, understanding these steps can help you streamline your next audit and prepare your team effectively.
For business professionals, auditors aren't the "bad guys" they’re sometimes perceived to be. Instead, they act as trusted advisors, ensuring sound financial practices and helping companies make informed decisions. This blog aims to break down some of the most common ways auditors verify account balances and transactions in a clear, accessible way to demystify the process and create a solid foundation for collaboration.
Auditors often rely on third-party documentation to verify the accuracy of an organization’s financial records—a process called vouching. But what does this look like in practice?
Here’s an example:
This type of evidence is especially critical in areas where misstatements or errors are common. By leveraging original documents such as invoices, contracts, or receipts, auditors can directly evaluate the validity of reported transactions.
The phrase “seeing is believing” holds weight in an audit. Auditors frequently perform physical inspections to ensure the reported existence of tangible assets. Inventory, in particular, is a key focus.
Before an audit, conduct an internal inventory count to reduce discrepancies and identify areas of concern ahead of time.
Confirmation letters are a powerful tool in an auditor’s arsenal, used to validate account balances and transactions directly with third parties. These requests typically focus on critical areas like cash accounts, accounts receivable, accounts payable, and employee benefit plans.
While confirmation letters were traditionally sent by mail, electronic confirmations have streamlined the process. Today’s methods include:
Make sure your records match up before these confirmations go out—it reduces back-and-forth and ensures speedier resolutions.
For assets valued or traded in external markets, auditors turn to publicly available data to verify their reported amounts. This is especially common for investments and inventory.
Regularly update your records with current market data so you’re prepared to provide substantiated evidence of values during the audit process.
Sometimes, the best way for auditors to ensure accuracy is to do the math themselves. Recalculations involve independently verifying a company’s in-house financial schedules or reconciliations.
Accuracy is critical in these calculations—not just for passing the audit but also for maintaining trust with stakeholders.
Preparing for an audit doesn’t have to be a headache. By understanding the various ways auditors verify financial information, you’ll be better equipped to anticipate their requests and minimize disruption.
Here are a few best practices:
Auditing isn’t a task to fear—it’s an opportunity to validate your processes and gain valuable insights. By understanding the methods auditors use, you position your organization to not only meet compliance standards but also improve operational and financial efficiency.
At SD Mayer & Associates, we believe in making financial clarity accessible and intuitive. Whether you’re preparing for an audit or seeking innovative ways to optimize your business, our experts are here to guide you every step of the way.
Reach out today to discuss how we can support your organization through its next audit season and beyond.