To get a better understanding of the
audit process, we can take a look at the definition of an audit. Audit – “an official
inspection of an organisation’s accounts, typically by an independent body”. An efficient audit is one that
reduces the audit risk to the targeted level, ensures that
there are no material errors contained in the financial statements and gives
the stakeholders an independent reassurance that their interests are taken care
The audit process can
be split up into what auditors do and why they do it.
What auditors do
Why they do it
letter sets out the terms and responsibilities of both the client and the
auditor to give a clear understanding of what is required of both parties.
To get a better
understanding of the company being audited, the environment they operate in, the
internal control systems in place and inherent risks of the company.
After a better
understanding of the inherent and control risks are established, the auditor
will be able to determine the number and
type of procedures to perform.
Perform the risk
The auditor performs
the procedures as determined during the planning stage to give reassurance
that the accounting work is free from material misstatements and that other
legislation has been complied with.
Compile a management
feedback on findings from the procedures performed and make recommendations
Give an independent
and objective opinion (the audit report)
for example, shareholders, the bank, etc. an objective opinion that the
financial information as presented by management is free from material misstatement and can be trusted.
the business is a going concern, in other words, the business is in a
financial position to continue operating in the near future.
Due to the nature of testing (samples
tested) and inherent limitations, an audit is not a 100% confirmation that the
financial statements are free from all misstatements and that there is no fraud
involved in the company. The objective of an audit is to give reassurance that
the information provided to stakeholders by management are free from material
misstatements. Due to the focus on specific areas of key legislation, the audit
also does not guarantee that all legislation has been complied with even though
during the audit fraud may be identified.
The goal for management is to get an
unqualified audit report, meaning that the financial statements are free from
material misstatements. There are no findings made by the auditor on the
management report and the auditor identifies no material findings on
non-compliance with legislation. To ensure an unqualified audit report,
management is required to uphold high-quality governance, ethical leadership with
appropriate policies and procedures in place and ensure financial and
performance management of a high stand is maintained.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)