The audit process

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 of.

The audit process can be split up into what auditors do and why they do it.

What auditors do	Why they do it
Compile the engagement letter	The engagement 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.
Audit planning	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.
Risk assessment procedures	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 response procedures	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 report	Give management feedback on findings from the procedures performed and make recommendations where required.
Give an independent and objective opinion (the audit report)	Give stakeholders, 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.
Going concern conclusion,	Reassurance that 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)