What is the Audit Cycle?

The audit cycle is the period of time during which auditors may engage in auditing activities as part of their audit of a client’s financial statements. For example, auditors might examine the inventory records of a firm a few months prior to year-end to determine the accuracy of its inventory records, while issuing receivable confirmations a few months later, after the books have closed for the year.

Components of the Audit Cycle

There are several distinct stages in the audit cycle. The first is an identification of the accounting areas that are in need of an audit. Once these areas have been identified, the auditors settle upon the methods that will be employed to collect transactional and other information for examination. The third part of the cycle is audit fieldwork, where the audit team collects and analyzes transaction samples. Once audit fieldwork is complete, the audit manager presents the initial findings of the audit team to management, which may elicit comments that lead to additional field work. Finally, the audit team summarizes its comments into an audit report, along with audited financial statements, which are presented to the client’s audit committee.

Audit Cycle Concerns

The duration of an audit cycle can be of considerable concern to publicly held companies, because they must issue their audited financial statements by specific deadlines that are mandated by the Securities and Exchange Commission. If an audit firm has scheduled an audit with an excessively long cycle, it may be difficult for the client to issue its financial statements by the mandated date. This issue is partially caused by staffing issues at the audit firm, and partially by delays at the client that are due to accounting information not being ready for review by the audit team.