8 Types of Audit Procedures: All You Need to Know about!

An audit is a process in which an independent party, comprised of auditors, examines the financial statements of a company or business. The goal of an audit is for auditors to provide an opinion, usually in the form of an audit report, based on their assessment of whether the financial statements of the company show a true and fair view. Usually, audits are statutory and required by the law. Sometimes, other parties, including shareholders, financial institutions, creditors, etc. may also require an audit of the financial statements of the company before trading with it.

There are various types of audits. However, in almost all of them, auditors use different processes, tests, techniques, or methods. As stated, the main goal of these techniques and methods is to gather audit evidence to base their opinion on and use in the audit report. The reason for most of the techniques that auditors use is to check the financial statements of the company. Usually, these techniques and tests will include determining whether controls and assertions related to the financial statements are correct.

What is Audit Procedures?

Audit procedures are methods or techniques that auditors use to obtain audit evidence and form an opinion regarding the financial statements of a company. As mentioned above, auditors perform audit procedures to test various assertions related to the financial statement they are testing. For the Statement of Financial Position, the assertions are different as they relate to account balances. On the other hand, for the Statement of Profit or Loss, the assertions relating to the class of transactions.

Auditors use a combination of different audit procedures to obtain sufficient appropriate audit evidence. The audit procedures that auditors perform mainly depend on the risks associated with a particular audit assignment or engagement. For higher-risk audits, the number of audit procedures will be more as compared to lower risk audits. Auditors use their knowledge and expertise to determine whether the audit procedures they perform are sufficient for the related risk.

While auditors can get guidance from the International Standards on Auditing regarding the audit procedures they can use, the exact procedures they use vary by client. Each client will have different nature and, therefore, different levels of risk. Therefore, auditors must use their professional judgment to determine the audit procedures and their types to use.

8 Types of Audit Procedures

When it comes to audit procedures, there are several types. Depending on the item and assertion being tested, auditors can alter between these procedures to select the most suitable one. There are 8 types of audit procedures that auditors can use for this purpose. These include the following.

READ:  Professional Skepticism in Auditing

1. Analytical procedures

Performing analytical procedures is one the most basic yet among the most powerful tools that auditors have at their disposal. Analytical procedures include different processes through which auditors can analyze the financial statements of a company. These tools generally include analysis of trends, ratios, or relationships between the information in the financial statements. It can also include determining the relationship between financial and non-financial data. Usually, auditors need to use their judgment to determine whether the differences identified through applying analytical procedures are worth investigating further.

Through analytical procedures, auditors can find inconsistencies in the financial information presented in the financial statements of a company. Once they identify these inconsistencies, auditors can investigate them further, which mainly includes discussing them with the management and those charged with governance. If auditors can’t obtain a satisfactory answer to justify the inconsistencies, they can apply other procedures to confirm the differences. Throughout the process, however, auditors must remain skeptical.

An example of analytical procedures includes auditors comparing the key ratios of a company with its historical information to identify any anomalies. Similarly, it may consist of a vertical or horizontal comparison of the single line items of each financial statement.

2. Confirmations

Confirmations are documents sent by auditors to external parties to confirm their balances with the client. In confirmation, the auditor directly contacts parties with whom the business has balances remaining. These may include banks, customers, and suppliers. Confirmations are written letters and do not require input from the client. Therefore, confirmations are high-quality audit evidence, according to the ISAs. Thus, they are a vital audit procedure.

Confirmations give evidence of the existence of balances. They may also provide evidence of valuation, although it might not be accurate. Similarly, while the client is not directly involved in the confirmation process, auditors still need permission to send these confirmations to other parties. There are only some specific balances that auditors can use confirmations to verify.

For example, auditors may send bank confirmations to all banks in which the client has accounts to confirm their bank balance.

3. Inquiry

Inquiry in English means the process of questioning. In an audit, inquiry refers to the process of asking clients for an explanation regarding anything. When an audit engagement begins, the company being audited agrees to provide auditors with the right to obtain information that is relevant to the preparation of the financial statements or the purpose of the audit. It gives them access to individuals within the business from whom they deem necessary to obtain audit evidence.

READ:  Best Value Audit: What Is It?

Generally, auditors use inquiry to ask the clients for an explanation of their processes. Similarly, they may ask the client to provide information related to specific transactions or balances. Usually, the process of inquiry requires auditors to obtain verbal evidence. While it is a type of audit procedure, it does not produce a strong form of audit evidence. Therefore, auditors must pair inquiries with other procedures to obtain the best possible results.

For example, auditors can ask clients to explain their sales process or purchase process. Or they may also question the client regarding a transaction that they deem inconsistent with other information.

4. Inspecting records or documents

Inspecting records or documents consists of examining the supporting evidence for the preparation of financial statements. Usually, auditors check each document manually to check for its details. This process is known as vouching and is an important part of the Test of Controls and Test of Details of a company performed by auditors. Similarly, inspecting records may include tracing supporting documents from individual transactions or vice versa.

Since every transaction in a financial system must have proper source documents, auditors can confirm multiple assertions through inspecting it. These may include assertions related to occurrence, accuracy, completeness, or cut-off. Sometimes, auditors can also inspect non-financial documents to confirm other aspects of the financial statements.

For example, auditors may inspect the source document of a specific transaction within the sales system of a company to determine whether the details match with the accounting systems.

5. Inspecting assets

For almost all companies, assets are an important part of their financial statements. Auditors must, therefore, perform audit procedures on those assets to ensure their existence. While there are many types of assets, inspecting assets only works for tangible assets. Usually, an inspection of assets includes inspecting the fixed assets, also known as property, plant, and equipment, of a company. Similarly, it can include inspecting the company’s inventory.

Inspecting doesn’t only help in confirming the existence of an asset, though. It can also help auditors determine the physical state of the asset. Therefore, it can help determine whether an asset has suffered an impairment or not. Auditors can also use inspection of assets to identify any problems with inventories. That can help auditors determine whether the company has valued its inventories in accordance with IAS 2.

For example, auditors can make a list of all the fixed assets of a company and physically inspect them for existence. For larger companies, they may need to select a sample of assets first.

6. Observation

Observation is an audit procedure in which auditors observe the processes and procedures performed by the client. It can provide auditors with an idea of how the processes and procedures of the client work. Similarly, it can help them identify any weaknesses within these procedures. However, auditors must understand that their presence may influence the operation of the control. Therefore, like other procedures, auditors must also pair observations with other types of audit procedures for the best result.

READ:  Audit Procedures for Property Plant and Equipment

Observation also plays a crucial role at the end of year valuations of a company. At each year-end, companies count their inventory and cash to consolidate or update their records. Auditors can ensure their presence during these counts to obtain evidence of whether these processes take place effectively. These types of one-off observations provide the best audit evidence for both cash and inventory balances of a company.

For example, at the year-end, auditors can observe the cash count of their client to ensure the balance reported in its Statement of Financial Position is accurate.

7. Recalculation

The recalculation process is fairly straightforward. Auditors recalculate or recompute the balances or transactions that the client has already carried out. Usually, they recalculate amounts to ensure that the amounts in the financial statements match the auditors’ expectations of what they should be. Auditors can also identify differences between the expected amount and actual amount and investigate it further. They can use recalculation to test the valuation and allocation, accuracy assertions.

For example, auditors can recalculate the interest expense of a company by multiplying the closing balance of a loan with its interest rate obtained from the contract.

8. Reperformance

Reperformance is similar to recalculation. However, in reperformance, auditors independently perform the control procedures that the client has already done as a part of its internet control system. Reperformance is a useful part of the test of controls in the audit process. Reperformance may also require some recalculations, which are part of a client’s internal controls.

For example, bank reconciliation is a part of a company’s internal control, which auditors may reperform to ensure effective internal controls of the client.


Audit procedures contain methods that auditors use to obtain audit evidence. These are a part of the audit process and depend on the nature of the client. There are 8 types of audit evidence. Auditors must use a combination of these audit procedures to obtain sufficient appropriate audit evidence. The types of audit evidence include analytical procedures, confirmations, inquiry, inspecting records, inspecting assets, observation, recalculation, and reperformance.

Scroll to Top