What Takes Place During a Financial Statement Audit?

A financial statement audit is an independent examination of an organization’s financial records and statements. The objective of the audit is to provide an opinion on whether the financial statements are presented fairly and in accordance with the Generally Accepted Accounting Principles (GAAP). In Canada, GAAP generally refers to International Financial Reporting Standards (IFRS), Canadian Accounting Standards for Private Enterprises (ASPE) or Canadian Accounting Standards for Not-for-Profit Organizations (ASNPO).

During a financial statement audit, an auditor typically follows a systematic and structured process to collect evidence and evaluate an organization’s internal controls, financial statements and related disclosures. The process typically involves the following steps:

  • Planning and Risk Assessment: The auditor starts by gaining an understanding of the organization’s business, operations and financial reporting processes. This helps the auditor identify and assess the risks of material misstatement in the financial statements. Based on the risk assessment, the auditor plans the audit procedures and sets the scope of the audit.
  • Internal Control Evaluation: The auditor evaluates the effectiveness of the organization’s internal controls over financial reporting. This includes assessing the design and implementation of controls and testing their operating effectiveness.
  • Substantive Testing: The auditor performs substantive testing to obtain evidence about the accuracy and completeness of the financial statements. This involves testing transactions, account balances and disclosures. The auditor may also perform analytical procedures to identify unusual trends or fluctuations in the financial statements.
  • Audit Documentation: The auditor documents the audit procedures performed, the results of the audit and the conclusions reached. This documentation serves as evidence of the auditor’s work and forms the basis for the audit report.
  • Reporting: Finally, the auditor issues an audit report that includes the auditor’s opinion on the fairness of the financial statements. If the financial statements are presented fairly in all material respects, the auditor will issue an unqualified opinion. However, if the auditor identifies material misstatements in the financial statements, the auditor will issue a qualified or adverse opinion.

A financial statement audit is a critical process that provides assurance on the accuracy and completeness of an organization’s financial statements. The auditor’s opinion in the audit report is a valuable tool for stakeholders to assess the financial health and performance of an organization.


If you would like to discuss your organization’s needs and determine whether an audit is the right fit for you, please contact us to arrange for a free consultation.