Financial Audit Checklist
Financial audits examine your company’s accounting accuracy, internal controls, and regulatory compliance. This checklist covers cash management, accounts receivable, inventory valuation, fixed assets, debt agreements, and revenue recognition. It addresses GAAP compliance, audit testing procedures, and documentation standards. Mid-sized companies spend $50,000-$150,000 on annual audits. Proper preparation reduces audit fees by 20-30% and identifies control weaknesses before they become material findings. Use this for year-end financial statement audits, SEC compliance, loan covenant verification, or acquisition due diligence. It ensures clean audit opinions and stakeholder confidence.
Planning & Risk Assessment
□ Understand entity and environment
□ Assess inherent risks
□ Evaluate internal controls
□ Determine materiality levels
□ Plan audit approach
□ Allocate audit resources
□ Prepare audit programs
□ Schedule audit procedures
□ Coordinate with management
□ Review prior audit findings
□ Update permanent files
□ Prepare planning documentation
Internal Control Evaluation
□ Document control environment
□ Test control activities
□ Evaluate information systems
□ Review monitoring activities
□ Assess risk assessment process
□ Test segregation of duties
□ Evaluate authorization controls
□ Review reconciliation procedures
□ Test physical safeguards
□ Evaluate documentation standards
□ Assess management override
□ Document control deficiencies
Cash & Cash Equivalents
□ Confirm bank balances
□ Review bank reconciliations
□ Test outstanding checks
□ Verify deposits in transit
□ Review petty cash funds
□ Test cash receipts cutoff
□ Test cash disbursements cutoff
□ Review transfer procedures
□ Verify restricted cash
□ Test foreign currency translation
□ Review cash management
□ Assess liquidity position
Accounts Receivable
□ Confirm customer balances
□ Review aging schedule
□ Test bad debt allowance
□ Verify credit policies
□ Review collection procedures
□ Test sales cutoff
□ Verify pricing accuracy
□ Review credit memos
□ Test related party transactions
□ Evaluate collectibility
□ Review write-off procedures
□ Test subsequent collections
Inventory
□ Observe physical inventory
□ Test inventory counts
□ Review costing methods
□ Test obsolescence reserves
□ Verify ownership
□ Review consignment inventory
□ Test inventory in transit
□ Evaluate inventory controls
□ Review cycle counts
□ Test standard costs
□ Verify inventory adjustments
□ Review inventory turnover
Fixed Assets
□ Verify asset existence
□ Test additions
□ Review disposals
□ Verify depreciation calculations
□ Test useful life estimates
□ Review impairment indicators
□ Verify asset tagging
□ Test lease classifications
□ Review maintenance records
□ Verify insurance coverage
□ Test construction in progress
□ Review capital budgeting
Accounts Payable
□ Review vendor reconciliations
□ Test unrecorded liabilities
□ Verify payment procedures
□ Review purchase cutoff
□ Test expense accruals
□ Review vendor statements
□ Verify approval procedures
□ Test duplicate payments
□ Review credit terms
□ Verify tax compliance
□ Test subsequent disbursements
□ Review dispute resolution
Debt & Financing
□ Confirm debt balances
□ Review loan agreements
□ Test covenant compliance
□ Verify interest calculations
□ Review payment schedules
□ Test refinancing transactions
□ Evaluate going concern
□ Review guarantees
□ Test derivatives
□ Verify collateral
□ Review commitment letters
□ Assess debt capacity
Equity
□ Verify share capital
□ Review stock transactions
□ Test dividend declarations
□ Verify treasury stock
□ Review option plans
□ Test earnings per share
□ Verify retained earnings
□ Review equity agreements
□ Test share-based payments
□ Verify ownership records
□ Review corporate minutes
□ Test equity rollforward
Revenue
□ Test revenue recognition
□ Verify contract terms
□ Review pricing policies
□ Test sales transactions
□ Verify deferred revenue
□ Review warranty reserves
□ Test returns and allowances
□ Verify commission calculations
□ Review channel stuffing
□ Test bill and hold
□ Verify percentage completion
□ Review multiple deliverables
Expenses
□ Test expense classifications
□ Review cost allocations
□ Verify payroll expenses
□ Test employee benefits
□ Review travel expenses
□ Verify professional fees
□ Test rent expense
□ Review insurance costs
□ Verify utility expenses
□ Test repairs and maintenance
□ Review advertising costs
□ Verify tax expenses
Financial Reporting
□ Review financial statements
□ Test note disclosures
□ Verify comparative information
□ Review subsequent events
□ Test related party disclosures
□ Verify segment reporting
□ Review MD&A
□ Test earnings releases
□ Verify regulatory filings
□ Review internal reporting
□ Test consolidation procedures
□ Document reporting conclusions
How the Financial Audit Checklist works
Begin preparation 8 weeks before audit fieldwork. Reconcile all balance sheet accounts with zero variances over $5,000. Prepare account rollforwards for major accounts showing beginning balance, additions, deletions, and ending balance. Document revenue recognition policies with 5-10 sample transactions demonstrating proper application. Confirm bank balances, receivables with top 20 customers, and debt agreements with lenders. Organize supporting documentation in digital folders matching the audit program. Test internal controls yourself on 25 sample transactions. Schedule 2-3 hours daily for auditor questions during 2-week fieldwork period.
Failed financial audits trigger qualified opinions that damage investor confidence and violate loan covenants. Companies with material weaknesses see stock prices drop 8-12% on average. Audit adjustments over 5% of net income signal poor accounting processes. Banks often require immediate loan repayment for covenant violations. Proper preparation prevents 90% of common audit findings. Clean audits maintain access to capital markets, satisfy lender requirements, and provide assurance to investors. Companies with strong financial controls have 40% lower cost of capital.
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