According to a recent Gartner survey, eighteen percent of accountants make financial errors daily, and over half report several errors each month. In a high-stakes environment shaped by regulatory pressure and financial complexity, even routine mistakes can lead to audit failures, compliance issues, or reputational risk.
This guide provides a structured company audit checklist that helps businesses and CPA firms prepare for internal and external audits. This blog blends practical audit steps with required standards (GAAP, SOX, IRS), covering planning, documentation, testing, reporting, and follow-up, so your audits are accurate, defensible, and complete.
What is a Company Audit?
An audit is a formal evaluation of a business’s financial records, internal controls, or compliance processes to verify accuracy, detect risk, and ensure adherence to regulatory standards. In the U.S., audits play a key role in supporting trust among stakeholders, whether investors, regulators, or internal leadership.
Unlike informal reviews, audits follow defined frameworks (such as GAAP, SOX, or IRS standards), require supporting documentation, and often involve structured testing or sampling. Both internal and external audits serve as tools for improving transparency, reducing risk exposure, and preparing the business for scrutiny or growth.
1. Choose the Type of Audit
The audit process begins by selecting the right type based on business needs, risk areas, and regulatory drivers. Each type targets a specific aspect of operations or compliance, and the choice impacts how the audit is planned, staffed, and executed.
Internal audit: Typically initiated by the business itself to evaluate internal controls, detect inefficiencies, or prepare for regulatory audits. Often tied to compliance programs (e.g., SOX 404), fraud prevention, or process improvement.
External audit: Required for public companies and often requested by banks, investors, or regulators. Performed by an independent auditor to validate financial statements according to U.S. GAAP.
Tax audit: Conducted by the IRS to review federal tax returns for accuracy and compliance.
Compliance or operational audit: Designed to verify adherence to specific industry or operational standards (e.g., HIPAA, PCI-DSS, ISO 27001).
In many businesses, multiple audits, such as financial, internal control, and tax reviews, may run in parallel, each requiring its own preparation and documentation path.
2. Define the Audit Objectives and Scope
Once the audit type is identified, set clear objectives and boundaries. A well-defined audit scope sets the direction for the entire audit process. This step ensures team alignment, prevents wasted effort, and helps auditors concentrate on the highest-risk areas.
Set Clear Audit Objectives
Audit objectives define what the audit is meant to accomplish. They must align with the audit type and any known regulatory or operational pressures.
Common objectives include:
Validate the accuracy of financial statements under GAAP
Test internal controls for SOX 404 compliance.
Assess fraud risk in high-volume transactions (e.g., revenue, procurement)
Identify inefficiencies or policy violations in internal processes.
Example: “Evaluate whether 2025 financials are free of material misstatement and assess the effectiveness of key internal controls over revenue recognition.”
Identify Stakeholders and Their Priorities
Each audit has internal and external stakeholders with distinct interests. Knowing what each party expects shapes the audit depth and reporting requirements.
External audit stakeholders may include:
Investors or lenders (focused on financial accuracy and transparency)
Regulators (concerned with GAAP compliance or tax reporting integrity)
Internal audit stakeholders may include:
Executive management (interested in risk exposure and control failures)
Audit committee or board (requiring governance insights and SOX alignment)
Define What’s In Scope and What’s Excluded
The scope defines the audit boundaries. It tells the team exactly what to test and where to allocate time.
Scoping should address:
Accounts and processes: Revenue, payroll, inventory, procurement, IT access
Entities: Include or exclude subsidiaries, business units, or third-party vendors
Timeframe: Full fiscal year vs. rolling quarter vs. transaction-specific window
Testing level: Full population vs. sample-based testing
Also, document any exclusions:
Example: “The audit will review inventory valuation methods but will not include a full physical inventory count.”
Finalize Scope Documentation
Formalize the agreed scope in an engagement letter for external audits or in an audit charter for internal audits.
Each document should cover :
Objectives, scope boundaries, and methodology
Responsibilities and access requirements
Timing and deliverables
Known limitations or exclusions
This ensures clarity across the audit team, leadership, and external reviewers, reducing disputes and missed expectations later.
3. Identify Applicable U.S. Audit and Regulatory Standards
Audit procedures must follow the right standards depending on your audit type, entity status, and industry. Confirm these upfront to avoid compliance gaps later in the process.
Core Audit Standards to Match
GAAP: Governs how financial statements must be prepared, including revenue, expenses, and disclosures; required in all U.S. audits.
PCAOB Standards: Apply to audits of public companies; set rules for auditor independence, documentation, and report format under SEC oversight.
AICPA GAAS: Used for private company audits; outlines procedures for planning, evidence gathering, and issuing audit opinions.
SOX 404(b): Triggers internal control audits for public companies with $ 100 M+ public float; auditors must test and opine on control design and operation.
IRS Substantiation Requirements: Apply in tax-related audits or reviews; require proper support for deductions, credits, and returns filed.
Industry-Specific Standard: These include HIPAA (healthcare privacy audits), FINRA/SEC (broker-dealer reviews), DCAA (government contractor audits), and NERC/FERC (utility compliance checks).
Audit failures often stem from mismatched expectations, when the scope expands but the standards aren’t clear. Locking in the correct regulatory frameworks ensures that the audit delivers what regulators, executives, and auditors all expect.
4. Plan the Audit Process and Organize Your Team
Once the scope and standards are defined, the next step is to build a structured audit plan and assign responsibilities. A detailed plan prevents delays, clarifies workload, and ensures the audit stays aligned with its objectives.
Build the Audit Timeline
Set a timeline that includes planning, fieldwork, reporting, and follow-up stages. Work backwards from external deadlines (e.g., financial statement filing or board reporting dates) to fix key milestones.
Include checkpoints for internal reviews, issue resolution, and documentation handoffs, especially if multiple departments are involved.
Assign Audit Roles and Ownership
Each part of the audit requires clear accountability. Whether using internal staff or external firms, define who is responsible for planning, evidence gathering, testing, and reporting.
Key roles may include:
Audit lead or manager: Oversees schedule and quality control
Process owners: Provide source data and walkthroughs
Internal audit or compliance team: Perform initial testing.
External auditor: Conduct independent testing and issue a formal opinion
Conduct a Risk-Based Planning Review
Focus time and effort on areas with high materiality, known issues, or control weaknesses. Risk-based planning helps reduce over-testing in low-risk areas while ensuring coverage where needed.
Steps to complete:
Review past audit findings and control gaps
Identify significant accounts or complex transactions
Evaluate process changes, system upgrades, or staffing shifts
Adjust sampling and testing depth based on risk level
Document these risk assessments as part of your planning file; they justify scope decisions and help auditors explain their approach.
5. Prepare and Gather Key Documents Before Fieldwork
Fieldwork is the core execution phase of the audit. This is where auditors apply the procedures defined in the audit program to verify financial statement assertions, test internal controls, and evaluate operational compliance. A disciplined and well-documented approach ensures that all checklist areas are addressed, and the audit holds up to scrutiny.
Financial Statements and Core Records
Ensure all financial reports and ledgers are accurate, finalized, and aligned with the period under review.
Income statement, balance sheet, and cash flow report
General ledger: Complete record of financial transactions for the year
Trial balance: Summary of account balances for reconciliation
Revenue and sales data: Invoices, contracts, and sales registers
Expense documentation. Approved payments with receipts and supporting notes
Accrual records: End-of-period adjustments for revenue and expenses
Reconciliations and schedules: Supporting schedules for assets, liabilities, and equity
Bank and lease agreements: Loan documents, lease contracts, security notes
Payroll and tax filings: IRS Form 941, W-2s, payroll registers, benefits summaries
Control and Compliance Documentation
If your audit includes controls testing or SOX compliance, gather:
Control matrices and risk-control documentation (e.g., SOX 404)
Process maps and approval workflows
IT system access logs and role permissions
Internal policies on expense approvals, fraud detection, and financial close
Access and Audit Readiness
Set up audit logistics in advance to prevent delays.
Provide auditors with secure access to accounting systems and shared folders
Schedule walkthroughs with process owners before fieldwork starts
Assign a point of contact for data requests and clarifications.
Share the audit calendar with key milestones and internal deadlines.
Confirm that all data is consistent with the reporting cutoff date and organized in formats accessible to the audit team.
6. Conduct Fieldwork and Substantive Testing
Fieldwork is where the audit team carries out the procedures defined in the audit program. This includes testing financial records, verifying controls, and checking compliance. A structured and well-documented approach ensures that evidence supports every key assertion, and the audit can withstand regulatory or stakeholder review.
Run Substantive Procedures
Apply detailed audit procedures to high-risk and material accounts. Each test should align with specific financial statement assertions (e.g., completeness, existence, valuation). Common tests include:
Vouching: Trace recorded entries (e.g., revenue) to invoices or shipping documents
Confirmations: Request third-party validation of balances (e.g., receivables, cash)
Recalculations: Independently compute interest, depreciation, or accruals
Physical inspection: Attend inventory counts or verify assets
Cutoff tests: Confirm period-end transactions are in the correct fiscal year
Estimate testing: Review reserves (e.g., bad debts, warranties) using subsequent data or historical trends
Use Analytical and Sampling Techniques
Use analytical procedures to project expected balances or ratios and compare them against actuals. Investigate variances that fall outside thresholds.
Examples:
Project interest expense from average debt and rates
Compare gross margin % year over year
Flag utility costs that deviate from usage patterns
For sampling, use statistical or judgmental selection depending on the test objective:
Define sample size and tolerable error for statistical samples
Use risk-based judgment for focused tests
Track sample coverage and results; investigate missing documentation or unusual entries
In internal audits, consider 100% testing using data tools when feasible
Document and Investigate
Maintain clear workpapers that connect every audit procedure to its evidence and conclusion. Each workpaper should include:
Purpose of the test
Steps taken and sample used
Results and conclusion
Reference to supporting evidence
Reviewer signoff
Investigate any exceptions or errors found:
Determine cause (isolated vs. systemic)
Quantify known and projected misstatements
Compare the total error to materiality
Decide whether expanded testing is required
Notify management of major issues in real time
Execute Compliance and Regulatory Checks
If the audit includes regulatory or compliance elements, test these areas with the same rigor as financial items.
Examples:
IRS compliance: Test payroll tax filings (e.g., Form 941), tax withholdings.
Loan covenants: Verify adherence to ratio or reporting requirements.
Licensing and training: Confirm that required business licenses or employee certifications are current.
Internal audits: Review OSHA logs, HR records (e.g., I-9 forms), or HIPAA documentation, depending on the scope.
Apply Audit Tools and Supervise Progress
Use technology and team oversight to maintain audit quality.
Use CAATs to scan journal entries for red flags (e.g., weekend entries, round-dollar values)
Perform full-population scans for duplicates or outliers.
Track fieldwork progress using audit management platforms.
Keep internal deadlines and hold regular team check-ins.
Ensure all planned procedures are completed or properly justified if skipped.
7. Communicate Findings Throughout the Audit
Use structured, traceable communication during fieldwork to resolve issues early and keep the audit on track.
Schedule regular audit status meetings to report progress, blockers, and open items.
Communicate control failures or test exceptions as soon as they are identified.
Track all exceptions and their status in a central log shared with stakeholders.
Request management’s response to findings and evaluate supporting evidence.
Update workpapers when conclusions change due to new documentation.
Provide draft findings to department heads before the final report is issued.
Note whether findings were resolved or still require, then follow up in the final report.
Retain all communications, review notes, and interim logs in the audit file.
8. Report Audit Results and Follow-Up Actions
Once audit procedures are complete, the findings must be formally documented, reviewed with management, and communicated to oversight bodies. This phase turns audit evidence into actionable insights. Reporting must be clear, supported by evidence, and structured to drive follow-up, whether the audit is internal or external.
Start by drafting the final report. It should include:
A summary of the audit scope, procedures completed, and any limitations
Key findings, grouped by type (e.g., financial misstatements, control deficiencies, compliance gaps)
Supporting evidence for each finding and references to relevant workpapers
A clear statement of audit opinion or conclusion, if applicable
Each finding should be accompanied by a management response that either:
Confirms agreement and outlines corrective action, or
Disputes the issue with supporting explanation and documentation
Once the report is reviewed internally, share it with the appropriate stakeholders:
External audits: Share with management, the board, and the audit committee
Internal audits: Share with relevant department heads, compliance officers, and risk managers
If a follow-up audit or validation review is required, document that in the final report and schedule it in the audit calendar. Only close the audit once the report is signed off, supporting files are archived, and open issues are formally handed off for resolution tracking.
9. Post-Audit Follow-Up and Issue Tracking
Issuing the audit report is not the end of the process. Post-audit follow-up ensures that identified issues are resolved, corrective actions are implemented, and risks are reduced going forward. Whether the audit is internal or external, unresolved findings can undermine future performance or regulatory standing. This phase adds accountability and closes the audit loop.
Create a structured follow-up tracker listing each audit finding, assigned owner, planned corrective action, and implementation deadline.
Assign responsibility for each issue to the appropriate business unit or functional lead, with clear expectations on timelines and documentation.
Monitor high-priority or repeat findings closely. For material control weaknesses, schedule verification testing or request formal evidence of resolution.
For internal audits, plan follow-up reviews or audits to confirm implementation of key recommendations.
Periodically report follow-up status to executive leadership or the audit committee. Highlight overdue, incomplete, or recurring issues.
Document all updates, including management confirmations, test results, and supporting materials for resolved findings.
Formally close each issue only after verifying that corrective action has been completed and is effective.
Bottom Line
A complete audit process doesn't stop at fieldwork or reporting; it follows through until every risk is addressed and every issue is closed.
By using a structured company audit checklist that blends internal and external audit priorities, businesses can stay aligned with regulations, strengthen internal controls, and improve operational oversight.
Whether you're preparing for your first audit or refining an established process, these steps ensure that the audit delivers more than compliance; it delivers measurable value.
Partnering with VJM Global gives your team the support it needs to manage audits more efficiently. Our focused expertise and streamlined approach help ensure accurate, well-documented audits, delivering insights that reduce risk and support long-term financial stability.
We work with U.S. businesses and CPA firms to maintain clean, reliable financial records. From bookkeeping and balance sheet prep to equity reconciliation, our team helps keep your reports audit-ready and aligned with GAAP requirements.
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