PHASES OF AN AUDIT

The process of carrying out an audit should include the following phases:

Initial Planning;

Risk analysis;

Execution of work, and

Final result.

 

INITIAL PLANNING

In this stage, knowledge about the customer and / or his economic environment is updated; it stands to reason that if the client is new to the auditor, this update is transformed into obtaining the knowledge necessary to perform the work.

The steps commonly followed in this step are:

1. Contract letter: this is a contract where the work agreement is defined in writing, showing the scope and objectives to be achieved by this.

This contract must contain at least the following items:

Objective and scope of the work;

Fees and estimated hours of work;

Period covered;

Possible limitations;

Indication that the accounting reports are the client’s responsibility;

Indication that there will be no scope limitation, depending on the client;

Written confirmation of the charge (contract signing);

Others, such as contacts with the previous auditors, delivery dates of the reports, date and method of payment, etc.

2. Obtaining knowledge and / or updating, regarding the client’s particularities and their economic environment.

This part of the work aims to:

Pinpoint the areas with the greatest potential risk of the company;

Know the degree of subjectivity applied in the reporting areas, which is the one that generates the greatest risk of error;

Find out if there are unusual transactions.

In order to understand how the client’s business works, it is necessary that:

-we know how external factors affect the company, such as economic factors, leadership, tax rules, etc .;

-we know what are the internal factors that affect its operations, such as personnel policies, unions, etc.

3. General analytical review of reports and / or other information of interest.

This review usually consists of a few procedures, such as:

– Comparison of absolute data (eg total sales for year X1 with total sales for year X2, or the CPV sales ratio for both periods).

– Review of certain indices such as those of liquidity, profitability, etc .;

– Comparisons of budgets and projections;

– Study of the company’s break point;

– Application, when applicable, of regression techniques.

4. Determination of the relative importance (IR) figure. The concept of relative importance that meets the audit objectives is defined as that error value in the accounting reports that, until it is overcome, will not lead the Auditor to make any additional comments, in the opinion, as it does not distort the faithful image in the set of reports;
5. Audit planning memo. It is a working paper that documents and informs the team, about the general decisions of the work to be performed, this memo generally contains:

– analytical description of the customer and the service to be provided;

– preliminary assessment of the surroundings;

– important issues already detected;

– figure of relative importance;

– general work plan;

– others.