The Big Takeaway
Audit findings don’t just happen by chance. Auditors follow a structured process to determine whether something should be reported as a finding, and it all starts with one important question: What should be happening?
Before auditors can identify a problem, they need to establish the requirements or standards an organization is expected to follow. These are known as criteria, and they provide the foundation for evaluating an organization’s processes and controls.
Remember:
- Audit findings follow a process. Auditors don’t simply stumble across an issue and decide to write it up. Findings are developed using an established framework.
- Every finding starts with criteria. Criteria establish what should be happening before auditors evaluate what is actually happening.
- Laws and regulations can establish criteria. Government agencies must comply with applicable legal and regulatory requirements, which auditors may use to evaluate compliance.
- Grant agreements come with expectations. Funding often includes specific requirements that organizations must follow, and those requirements may become part of the audit criteria.
- Your own policies matter, too. Internal policies and procedures can establish expectations against which auditors evaluate an organization’s practices.
- Accounting standards provide another benchmark. Financial reporting requirements help auditors determine whether transactions and financial information are being handled appropriately.
- Understanding the criteria helps you prepare. Knowing which requirements apply to your organization can help you identify potential gaps before they become audit findings.
Know the Expectations Before the Audit
The first step in understanding an audit finding is understanding the requirement behind it. When your organization knows what is expected, it is better positioned to evaluate its procedures, strengthen internal controls, and address potential issues before they become larger problems.
Up Next: Building the Rest of the Finding
Establishing the criteria is just the beginning. Once auditors know what should be happening, how do they evaluate what is happening and determine whether there’s a reportable issue?
Stay tuned for the next installment of our Audit Findings Series as LSL Partner Ryan Domino continues breaking down the process.
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