Audit Phases
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ScribdTranslationsAudit Phases
Uploaded by
ScribdTranslationsAudit phases
1. RELATIONSHIP WITH POTENTIAL CLIENTS
Traditionally, relationships with potential clients are gained through contact.
personal (of the independent auditor or the partners of the auditing firms) with the
shareholders, directors, advisors, managers and/or executives of the companies, who, for which
Generally, they are partners who participate with some frequency.
2. INVITATION
The invitations to submit proposals for professional auditing services are
They receive in a direct and indirect manner. Let's start with this last form of invitation.
Indirect invitation
This form of invitation is usually made through the media.
writing, especially the official newspaper and the most widely circulated private newspapers.
Direct invitation
This type of invitation is done through letters sent by potential clients,
whether by recommendation from a satisfied client, or as a relationship initiated with the
shareholders, directors, advisors, managers and/or executives of the companies.
3. EVALUATION OF THE COMPANY'S OPERATIONS
IN ORDER TO PRESENT A PROPOSAL OF
PROFESSIONAL SERVICES.
Once the invitation from the potential client is received, either directly or indirectly, it is
usually coordinate, in writing or by phone, a visit to the company with the purpose of
carry out an evaluation of the operational movement.
This format called evaluation for proposal presentation contains:
• General aspects
• Top management and staff
• Societal aspects
• Financial information and trading volume
• Auditors from previous years
• Audit visits
• Deadlines for the execution of the work and for the delivery of reports
• Organization of the audit and others.
The information obtained from the evaluation for proposal presentation serves the
auditor to establish, among others:
• The scope of the work to be done and possible limitations
• Calculation of man hours
• Professional fees
• Basic business knowledge
• Internal organization of the audit work
4. PROPOSAL FOR PROFESSIONAL SERVICES
In a first audit, the independent auditor proceeds to evaluate the responses to the
questions contained in the format prepared for the purpose, in order to determine,
among other aspects, the type of company, the economic activity it performs, the volume
of operations, its financial structure, the type of opinion contained in the report on
the financial statements of the previous year, offices, warehouses or branches to visit in the
country or abroad, etc.
Independent auditors present their proposals for professional services of
varied form.
Finally, it is important to note that the proposals must be presented in a manner
formal, that is to say bound or coiled. Therefore, it is not advisable to send the
proposals via internet or fax, as requested by the client.
5. ACCEPTANCE OF THE PROPOSAL
In this phase of the financial statement audit, corresponding to the acceptance
from the proposal, we will discuss the process followed since the presentation of the proposals
from the audit to the communication of the selection results to the interested parties. A
once disappointed with the audit proposals, management generally sends them to the
directory with a table detailing the names of the auditors, fees, form
payment, terms, etc.
In the corresponding session, the board designates the auditors who will be in charge of the
examination of the company's financial statements for the current year.
6. AUDIT COMMITMENT LETTER
The commitment letter that the auditor addresses to the client documenting and confirming the
acceptance of the auditor to the appointment that has been made, as well as the scope of the work
for carrying out, the scope of their responsibilities and the type of report to be issued.
7. PLANNING MEMORANDUM
8. FIRST VISIT
8.1 CREATION OF THE PERMANENT FILE
Working papers are useful for:
Help plan and execute the audit;
Help supervise and review the audit work; and
Provide evidence of the audit work carried out to support the
auditor's opinion.
The aim of organizing a permanent archive is to facilitate for the people who carry out the
work, basic information about the client, so that they can understand better
ease their system and be in a position to refer to documents that are
relevant every year. Consequently, the permanent file must be maintained
updated year by year as long as the audit of that company continues to be carried out.
The documents obtained from the client or prepared by the auditor, duly
referenced, are organized in logical sequence within separate sections of the file
permanent.
8.2 UNDERSTANDING OF SYSTEMS
The auditor will need to become familiar with the client's organizational operations.
and gain an initial understanding of the accounting system; which will allow for a
preliminary identification of the internal controls on which it is proposed to rely. Everything
this as a prerequisite to the determination of the audit strategy.
In order to determine the degree of trust that will be placed in internal control
As a basis for the reasonableness of the financial information, the auditor must obtain
an initial understanding of the main characteristics of the accounting system
implemented by the company.
The understanding of the systems must be documented through summarized flowcharts.
However, it is necessary to differentiate the initial assessment, which is carried out for the purpose
to design the audit strategy, of the detailed evaluation that is carried out using
internal control questionnaires and/or narrative descriptions.
8.3 PRELIMINARY EVALUATION OF INTERNAL CONTROL
The auditor's first step to form an opinion on the financial situation and the
the results of a company's operations at a given date is to obtain
evidence of how much trust you can place in the financial statements prepared by your
client; this evidence is obtained through audit tests. To decide what
tests to carry out and the scope of these, the independent auditor needs to conduct a
preliminary assessment of internal control.
The objective of this preliminary assessment is to identify the controls that provide
reasonable assurance that the accounts that make up the financial statements are
correct and reliable. These controls are the ones that must be tested; consequently, the
primary evaluation identifies the controls that do not need to be tested.
8.4 FINAL EVALUATION OF INTERNAL CONTROL
After conducting the preliminary evaluation of the internal control, either through
questionnaires, flow diagrams or narrative descriptions or a combination of them,
the auditor must ensure that they have understood the system that has been recorded for it
which will carry out what is called compliance testing or testing of
transactions. It consists of selecting a transaction of each type and tracking it through
from the client's accounting system. In this regard, it will ensure that all operations
It has been verified through these reviews that sometimes they are referred to as tests.
of follow-up.
8.5 LETTER OF RECOMMENDATIONS FOR IMPROVEMENT
INTERNAL CONTROL
After conducting the preliminary assessment of internal control, whether through
questionnaires, flowcharts or narrative descriptions or a combination of them,
and to carry out the final assessment of internal control with systematic development
from the so-called compliance tests, the auditor must timely report
to management the weaknesses of internal control detected in the mentioned tests,
recommending, in each case, the measures that will need to be taken to overcome them.
As a result of their study and their tests of the accounting systems and
internal control, the auditor can identify their weaknesses. The auditor must
communicate to management, in a timely manner, and at the appropriate hierarchical level, the
material weaknesses that have been identified in the design or in the functioning
of accounting systems and internal control. Communication must be made
preferably in writing, but if the auditor deems that verbal communication is
the appropriate one, this must be documented in the working papers. It is important
that indicates in the communication that it is only referring to the weaknesses
what he has identified as a result of his examination, and that it has not been projected
to establish the suitability of internal control for administrative purposes.
9. INTERIOR VIEW
