Audit Cycle

What is the Audit Cycle?

Audit Cycle is the procedure in which auditors of an organization review the financial statements and find gaps in the current processes so that appropriate corrections can be made; The steps or stages in the audit ensure that it is performed diligently and the report publishes information whose validity can be determined and is accurate.


An audit cycle has different steps that the auditor needs to perform so that the audit can be performed accurately and no tampering of data is done which would depict the wrong image of the organization. It is not necessary that all tasks are performed at the same time since one task at a time proves to be the most efficient way to perform an audit. Organizations usually appoint an external auditor to perform an audit of the internal processes of the organization so that there is no bias.

Example: If Process A which deals with payments is being audited in the month of August; Process B which deals with procurement of raw material may be audited anytime after the audit of Process A is completed.

Audit Cycle

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Audit Cycle (

If you want to learn more about Auditing, you may also consider taking courses offered by Coursera

  1. Auditing I: Conceptual Foundations of Auditing
  2. Auditing II: The Practice of Auditing

Stages of Audit Cycle

Even though it is termed as a cycle it is not a continuous process. The process is quite straight forward and the different stages are as mentioned below:

Stages of Audit Cycle

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Audit Cycle (

#1 – Planning

The most important phase of an audit cycle is planning where the audit is planned as to what is the aim of the audit and what criteria best suit to arrive at the aim. AuditorsAuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating more need to plan well in advance on the timelines for the audit so that they can provide a tentative date of completion to the management for their report to be published.

#2 – Sample Collection

Once the plan is chalked out, the auditors approach the owners of a particular process/business unit to provide samples of the data that the auditor is looking for. This can be any random date and the auditors can gauge from these samples in case there are any anomalies in the same process for different dates. The auditor has the right to dig deep into the process unless he is satisfied with the explanation given by the process owners.

#3 – Draft Report Creation

As soon as the samples are collected, the auditors’ role is to create the draft report on the basis of the findings. In this report, the auditor needs to report any fraud or illegal acts or anything equivalent. Corrected material, disagreements with the management about estimates and accounting policiesAccounting PoliciesAccounting policies refer to the framework or procedure followed by the management for bookkeeping and preparation of the financial statements. It involves accounting methods and practices determined at the corporate more and any significant difficulties encountered should be reported on the report. Any corrections/suggestions in the current procedure will be given to the process owners who will have their own set of procedures to go through before the corrections/suggestions are implemented on their end.

#4 – Additional Requirements

If the auditor requires any more information he still can request for the additional requirements to be furnished. While preparing the report, the auditor may find the need for evidence of a representation made by the process owner. In case the additional requirements are not furnished, the auditor might report the inability to provide any supporting evidence for any claims made. Amendments to the report can be made in this stage however post this step there will be no room for correction.

#5 – Publishing Report

The final report is published only after being reviewed by the auditors, the management and the process owners. The report is published to the management and the investors who then study the report and provide their suggestions if any. A process-wise report is not published to the investors instead of a consolidated report of all the process and financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all more are published for the investors since it can be confusing for the investor to go through the report drilling down the minute procedures in the process.


  • The audit cycle ensures that the auditing is carried out smoothly and no process leaks are involved.
  • Gives the authority to the auditor to question the current procedures and norms.
  • The audit process can be tracked efficiently which ensures there is no delay in the activities and timely completion of the whole audit.
  • Focuses on the systematic approach rather that many things at a time. As a result, the outcome of the audit cycle is a reliable report.


  • The audit cycle relies on data provided by an unrelated team/entity/business unit. The authenticity may or may not be verified.
  • If a misrepresentation is not identified, it is a flaw on the side of the auditor and the whole audit cycle will be questioned on the integrity and accuracy of the report.
  • It is a time-consuming process since it focuses on auditing tasks performed by others and requires sample collection which is totally dependent on when the process owners provide the samples. In case, the correct samples are not provided, the auditor would need to chase for the requirements again and perform the same checks previously performed for the incorrect samples.
  • The report generated after the audit cycle is completely dependent on the samples and data as furnished by the business units/process owner which can be masked or misrepresented; thereby creating an incorrect report being published to the investors. The auditor’s knowledge also plays an important role in the final report.


The audit cycle is a process that helps in efficient auditing of a process or a business unit or the business as a whole. It focuses on the procedures or stages that the auditor has to follow to arrive at an unbiased report on the basis of the evidence furnished and their understanding of the business. It enables the auditors to depict the progress of the audit to the management.

Recommended Articles

This has been a guide to what is Audit Cycle. Here we discuss stages of the audit cycle with an example, benefits, and disadvantages. You may learn more about financing from the following articles –