Publicly held companies, or private companies that apply for credit, must have routine audits of financial transactions conducted. Outside agencies, not affiliated with the company, perform these audits. Some audits pertain to a specific area of accounting, such as accounts payable. The purpose of the audit is to ensure compliance with generally accepted accounting principles (GAAP) and to validate the controls a company has in place to protect employees and the company.
Reports and Company Procedures
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Non-Statistical and Statistical Sampling
Auditors can choose from a method of sampling. The non-statistical method is most useful when not auditing for specific amounts or figures, such as when completing a tax audit. In most cases, an audit of accounts payable would use the non-statistical approach, which includes random sampling, block sampling, haphazard sampling or systematic sampling. The purpose of this type of audit is to review actual evidence and compare it to the company’s policy and procedures, as well as GAAP.
Auditors must adhere to specific principles when conducting an audit. When an auditor requests samples, he may look at vendors that receive many payments, and may specifically request copies of checks made to the vendor as samples for review. The choices he makes are random and usually not known in advance. After reviewing the various reports, he submits a list of all sample materials he wants pulled for an audit review.
Adherence to Standards
When the auditor reviews accounts payable check stubs and accompanying backup, she’ll want to ensure that proper approvals are present and procedures followed. She compares the documentation against the company’s standard and procedures. It also helps when the company provides the limits of approval within the company by person, a list of those who can approve invoices as well as a list of those who approve and sign checks.
What the Auditor Reviews
The auditor looks at a company’s chart of accounts, how transactions are handled, whether they conform with company standards, procedures and GAAP, how records are kept, who has access to them, whether transactions conducted meet the company requirements and standards for approval. Auditors help determine that a company’s records are viable, numbers are accurate and no required approvals and steps are left out of the process.
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