Until 2015., small and medium sized enterprises were subjects to audits, only in a few cases. With the adoption of the new Accounting Act, all of the medium sized enterprises, of the economy of Republic Croatia has become subject to one year audits of the financial statements. The financial statements must be prepared in a prescribed manner within the scope of accounting profession rules and statutory regulations, and persons observing and examination the reality and objectivity of those Financial statements, for the interests of external users, must adhere to the prescribed guidelines and auditing standards.For the master thesis, the presentation of audit specificity in small and medium sized enterprises was selected because many form of enterprises are active in the Republic of Croatia, and small and medium sized enterprises make up as much as 99.7 % of all real sectors in the territory of the Republic Croatia. The master thesis presents the most important determinants in terms of principles, standards and procedures of the process of auditing financial statements, with brief specific examples of the performance of individual procedures in auditing: th e procedures for selecting the auditor, contracting the audit engagement, planning the audit process, assessing risks and gathering audit evidence, and ultimately reporting and issuing the auditor’s opinion on the financial statements.