Audit Procedures: What They Are and How Auditors Test Financial Statements

Audit procedures are the methods auditors use to gather the evidence they need to form an opinion on a set of financial statements. Understanding them is essential for anyone studying auditing or working in or with audit. This guide explains what audit procedures are, the main types, the specific techniques auditors use, and why they matter — in clear, plain language. It complements our ACCA Audit and Assurance guide. Auditing standards evolve over time, so always refer to the current standards for authoritative detail.

What are audit procedures?

Audit procedures are the methods or steps auditors perform to obtain audit evidence. The purpose of an audit is to enable the auditor to express an opinion on whether the financial statements give a true and fair view (or are presented fairly) and are free from material misstatement. To form that opinion, auditors need sufficient, appropriate evidence — and audit procedures are how they gather it. In essence, audit procedures are the practical work auditors do to test and verify the figures and disclosures in the financial statements, gathering the evidence that supports their conclusions.

The main types of audit procedure

Audit procedures broadly fall into two main categories:

• Tests of controls — procedures to test whether the organisation's internal controls are operating effectively. If controls are reliable, the auditor may be able to place some reliance on them.
• Substantive procedures — procedures to detect material misstatements directly in the figures and disclosures. These include tests of detail (examining individual transactions and balances) and substantive analytical procedures.

Auditors design a combination of these procedures based on their assessment of risk, aiming to gather enough appropriate evidence efficiently. Where risks are higher, more or more rigorous procedures are typically performed.

Specific audit techniques

Within these categories, auditors use a range of specific techniques to gather evidence, including:

• Inspection — examining records, documents or physical assets.
• Observation — watching a process or procedure being performed.
• Inquiry — seeking information from knowledgeable people inside or outside the entity.
• External confirmation — obtaining evidence directly from a third party (such as confirming a balance with a bank or customer).
• Recalculation — checking the mathematical accuracy of records.
• Reperformance — independently carrying out procedures or controls.
• Analytical procedures — evaluating financial information by analysing relationships and trends, and investigating anything unexpected.

Auditors choose the most appropriate techniques for each situation, often combining several to obtain reliable evidence.

How auditors decide what procedures to perform

Auditors don't test everything; instead, they take a risk-based approach. They assess the risk of material misstatement in different areas of the financial statements and design their procedures accordingly — performing more, and more rigorous, procedures where the risk is higher, and less where it's lower. The aim is to obtain sufficient appropriate audit evidence to support the audit opinion, in an efficient way. This is why audit procedures are tailored to each particular audit and each area, rather than applied uniformly. Professional judgement plays a central role in deciding what evidence is needed and how best to obtain it.

Why audit procedures matter

Audit procedures matter because they're the means by which an audit achieves its purpose — gathering the evidence that underpins the auditor's opinion. Well-designed and properly executed procedures give the auditor a sound basis for their conclusions, which in turn gives users of the financial statements confidence in them. Poorly designed or executed procedures, by contrast, can undermine the whole audit. For students of auditing, understanding the types and techniques of audit procedures is fundamental, and for those working in or with audit, it's central to the work. As auditing standards develop over time, the detailed requirements may change, so it's important to refer to the current standards for authoritative guidance rather than a general overview alone.

Frequently asked questions

What are audit procedures?

The methods or steps auditors perform to obtain audit evidence — the practical work they do to test and verify the financial statements and support their opinion.

What are the main types of audit procedure?

Tests of controls (testing whether internal controls operate effectively) and substantive procedures (tests of detail and substantive analytical procedures that detect misstatements directly).

What specific techniques do auditors use?

Inspection, observation, inquiry, external confirmation, recalculation, reperformance and analytical procedures — often combined to obtain reliable evidence.

How do auditors decide what procedures to perform?

They take a risk-based approach — assessing the risk of material misstatement and performing more rigorous procedures where risk is higher, to obtain sufficient appropriate evidence efficiently.

Build your audit knowledge with Learnsignal

Learnsignal's tutor-led ACCA courses build solid audit and assurance knowledge — including audit procedures and evidence — with expert tuition, practice and support, all through flexible online study that fits around your work. For ongoing technical development, explore our CPD courses.