New York Financial Audit Review

While audits can uncover fraud or misconduct, their primary function is now risk assessment and assurance of financial statement accuracy. In New York, audits are governed by both federal standards (e.g., PCAOB, AICPA) and state-level mandates for specific entities.

Scheduled audits are conducted annually on a predetermined timeline. Ad hoc audits, however, are conducted in response to specific events or upon request by stakeholders.

Internal audits are conducted by the company's own auditing department. External audits are performed by licensed CPAs or registered public accounting firms, required for publicly traded or regulated entities under New York Business Corporation Law § 717.

Voluntary audits are initiated by the entity without legal compulsion. Statutory audits, on the other hand, are mandated by law for corporations, banks, insurance companies, and nonprofits meeting financial thresholds as specified under New York Not-for-Profit Corporation Law or Financial Services Law.

Complete audits examine all accounting entries and documentation. Partial audits, or sampling audits, analyze selected transactions or periods, based on materiality and auditor judgment.

Interim audits occur during the fiscal year to monitor ongoing compliance. Year-end audits are finalized after the close of the fiscal year and include examination of annual financial statements.

1. Pre-engagement Analysis
   Includes evaluating the company background, independence checks, and risk assessment before signing an audit agreement.
2. Audit Planning
   Identifies materiality, determines the audit scope, and allocates audit resources. Risk-based auditing is commonly used in New York practices.
3. Evidence Gathering
   Techniques such as analytical procedures, sampling, and confirmations are used to gather evidence on transactions and balances.
4. Conclusion and Reporting
   The audit opinion is issued, and any internal control deficiencies or errors are documented and shared with management.

These include:

• Preliminary Surveys: Understanding internal control structure and accounting systems.
• Transaction Audit: Verifying that transactions are recorded in compliance with GAAP.
• Balance Audit: Confirming accuracy of ending balances for accounts such as inventory or receivables.
• Adjustment Review: Evaluating the legitimacy of year-end adjustments.

This is issued when the auditor finds no significant issues. It affirms that the financial statements are fairly presented, in all material respects, under GAAP. Required for public filings and many financing arrangements in New York.

Issued when the auditor identifies limitations or exceptions that are not pervasive. For example, a scope limitation or minor departure from GAAP.

Indicates that financial statements are materially misstated. It usually leads to regulatory scrutiny or penalties under SEC or state law.

When the auditor is unable to obtain sufficient evidence, they issue no opinion. This is a red flag in New York’s corporate compliance evaluations.

Entities subject to audit may include:

• Public companies under the Securities Exchange Act of 1934
• NY-chartered banks under New York Banking Law § 36
• Nonprofits receiving more than $500,000 in annual donations under Executive Law § 172-b

Common issues leading to audit concerns in New York include unrecorded liabilities, improper revenue recognition, and lack of internal controls. These are often flagged in enforcement actions by the NYS Attorney General or Department of Financial Services.