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AUDIT PROCESS

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 Main phases of Audit Process

Planning
Field work (Evidence Gathering)
Report writing
Audit Follow – up

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 Phase 1: Planning

Stages in Planning of Audit 

1. Engagement
This could be a request from the authority or a
routine audit.
• Appointment of audit team: The appointed team (by
Audit Executive) should do the following:-
 Conduct team first meeting
 Document preparations for audit
 Set engagement objectives (audit objective)
 Determine the scope of audit.

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2. Conduct in office review

Review documents (criteria) related to the client (laws,
regulations, guideline etc.)
Advantages of in-office review
 Gain good understanding of the client
 Help to establish audit risk and materiality of issues (relevant
criteria).
 Help to identify criteria and establish compliance requirements
 Clarify audit objectives (operating objectives).
 Enable the team to prepare relevant questions to the client during
entrance meeting.
 Help the team to understand well the criteria (what is to be done; by
whom and when).

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3. Contact and meeting client

Clients needs to be notified on the audit at least 5 (five)
working days before entrance meeting.
Notification should be formal (eg. Engagement letter)
Contents of engagement letter
 Letter reference
 Date of letter Source of audit (Annual plan, Management request etc.)
 General audit objective
 Names of audit team and team leader
 Official contacts of team leader
 Time and location of entrance.

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4. Entrance Conference
Should be conducted prior to preliminary survey
Head of Internal audit should meet with key personnel of
the client
Points to be discussed in entrance meeting
 Scope and objective of audit
 Emphasize that the purpose of audit is to add value to the
organization.
 Determine who will be the contract person from the client (it should
not be the director or person of too high level).
 Brief overview of the process from preliminary survey to reporting.
 Tentative audit event timeline estimated dates of fieldwork, interim
meeting, exit meeting, audit report (draft and final) and follow-up
audits.

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 Entrance Conference……
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 How audit findings will be handled (resolution of minor findings;
agreement on the action plan to implement the audit
recommendations etc.)
 Collective review of draft report.
 Method of distribution of final audit report.
 Identification of areas of special concern by client (Note: Do not get
involved in functional or operational activities of the client).
 Working hours, access to records, available work area, clients work
deadline requirements (i.e. Auditor should fit into the clients
office routine with minimal disruption to client).
 Arrange for tour of the facility for familiarization.
 Arrangement for auditors to meet other personnel who will be working
with during audit.
Note: Effective Communication at the beginning of
audit engagement will significantly influence the
atmosphere in which the entire audit is conducted.

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5. Preliminary survey
This refers to the process for gathering information without
detailed verification on the activity being examined (audited)
Why Preliminary Survey
 To understand well the activity under review.
 Identify significant areas that worth special emphasis.
 Obtain relevant information for use in actual audit.
 Determine whether further audit is necessary (nature, timing and extent of
detailed audit work).

Note: i) No fieldwork should be started unless

preliminary survey has been conducted.
Survey work may be more extensive for activities that are
audited for the first time than for areas that were audited
previously.

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 Preliminary survey……
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Phases of Preliminary Survey

i. Familiarization
Obtaining significant back ground information and
practical working knowledge of applicable laws,
regulations policies, and procedures, management and
financial controls, organizations statues and staffing; and
unusual challenges faced.
Documents to be reviewed includes; previous audit
reports/programs, working papers, laws, regulations,
operating manuals, organization charts, financial
statements, flow charts, budget, operating reports etc.

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ii) Identification of
potential areas for
improvement
Identifying areas for audit emphasis (risk area). These
include:-
 Areas identified/documented in risk. Register.
 Area of high possibility of fraud or mis management
 Where there is large volumes of transactions.
 Where management has expressed concerns.
 Where prior audit disclosed major weakness/deficiencies.
 

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iii) Confirmation: Getting evidences from third

parties where necessary.
(iv)Planning the detailed audit
 Preparation of audit program in areas that worth for further audit
 Audit program should be recorded
 It basically show, what is to be done; by when; by who; for how
long and how will it be done.
 This is a link between preliminary survey and field work.

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 Mechanics for preparation of Audit
Program
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 Setting of Audit Objective: Start from operating objectives
followed by operating procedures eg.
Operating objective: To ensure procurement of right
goods/service at right, right price, at right time and right quantity
and quality).
Operating Procedure: On requisition, the ordering dept
should clearly spell out the goods/service to be procured – proper
specification).
Audit Objective: To ascertain whether the procurement of
goods/services was done properly to ensure right goods/service,
right price, right time and right quality and quantity.
 Determine the scope of Audit Program – (objective of Internal
Control System) and key risk from the same.
 Develop audit objective from operating objective/target;
requirement of the law (legislative requirements) terms of
reference – in special audit assignment [see item (i) above].

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Benefits/Advantages of Audit Program

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Set a systematic approach to audit. Gives specific

steps to be taken by auditor.
Provide precise instruction to obtain precise audit
information.
Provide for more focused audit hence serve time for
audit engagement.
As a bases of or duty/assignment to audit assistants.
Help the supervisor to monitor the audit
Provide summary of work to be done. 

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 Phase 2: Field work (Evidence
Gathering)
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Is the systematic process of gathering evidence about

entity’s operations, evaluating it and found out
whether those operations meet the acceptable
standards.
Here auditor perform the procedures as in the audit
program by doing the following:-
 Concentration on transaction testing and informal
communication.
 Determine and evaluate whether internal controls are
operating properly and in manner described by management.

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 Evidence

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Defn: Refers to all matters that supports a

point/position assumed by auditor

Qualities of an evidence
Evidence must be:-
 Suffient ie. Adequate and convincing.
 Competent ie. Reliable and best attainable.
 Relevant ie. Supporting the observations and
recommendations; consistent with objectives.
 Useful ie. Help the organization to meets its objective.

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 Evidence….

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Types of evidence
Physical - direct inspection/observation – documented
as memoranda, charts, maps, photographs etc.
 Documentary - created information eg. Accounting
records, invoices, letters contracts etc.
Testimonial - responses to inquires – interview (needs
to be confirmed).
Analytical - analysis or verification of information –
computations, comparisons of operations; standards,
law/regulations, and evaluation of physical or
documentary information.

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 Field work Audit Checklist
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Before going to fieldwork the audit team should ensure to

have the following:-
Audit program (each team member should have a copy).
Responsibility of each team member (segregation of
duties).
That audit client is aware in advance.
Adequate working tools (working papers, folders,
stationery, calculator, laptop, camera etc.).
Copies of relevant laws, regulation, standards, etc.
relating to the audit area.

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 Documentation of the fieldwork
results
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The field results (step of activities) will be recorded

in the audit working paper.
The reference should be made in the working
paper with the audit program to maintain
consistency.
The working papers are used to arrive to the audit
finding.

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 Exit Meeting
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This is the meeting between audit team and the

client at the end of fieldwork.
The objective of the meeting is to share and
discuss the key noted findings.
It is the important forum for audit team to get
confirmation on the obtained/noted findings;
responses from the management and the tentative
corrective actions/action plans.
The minutes of the meeting should be well
documented and signed by both parties and these
forms parties of the working papers.

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 Filling of 5 – Attribute form/sheet
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This is the sheet/form where audit findings are

recorded.
It is a key tool for ensuring effective report writing.
Summary of contents of the form include:-
 Audit objective: The purpose of audit
 Attributes of the findings: Condition, criteria, cause
effect and recommendation.
 Client personnel with who discussed: Name, title, dept, date of
discussion, and name of auditor.
 Comments by client personnel: Relevant comments made by
client personnel with whom the finding was discussed.

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 Phase 3: Reporting
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This refers to the communication between the

Auditor and the Client on the results of the audit
engagement (It is the product of audit
engagement).
It is the most visible output that provides
feedback to the client and other stakeholders on the
result of engagement.
It is an opportunity for audit showing how it can
add value to the organization.
It provide the management with the opinion on the
adequacy of internal controls systems.

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 Quality of the Internal Audit report
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Internal Audit Report must be:-

Accurate - ie. Free from errors and distortions
(purpose clearly communicated).
Objective - ie. Fair, impartial and unbiased.
Clear - ie. Easy to understood and logical.
Concise - ie. Straight to the point without unnecessary
details.
Constructive - ie. Help the client to improve its
performance (practical solution).
Complete - ie. Should include all the relevant facts.
Timely - ie. Well timed to enable timely decision
on proposed recommendations.

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 Format of Internal Audit Report
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The standard audit report should have the following key sections
 Executive Summary: showing all aspects of the report but in a
nutshell. It should be able to give the snapshot of the whole report,
but it should not too much summarized to lose the meaning.
 Introduction: Show the background information on area under
the audit, establishment, objective, function etc. (The mandate of
the internal audit in auditing such area).
 Objectives: Show the audit focus, expected output (what it will
achieves (could generals and specific ones). 
 Scope of Audit: description of auditable areas, timing (period
covered and when the audit conducted).
 Compliance statement: describe that the audit activity was
conducted “In accordance with professional practice of auditing
standards” (whether local, international or both).

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 Approach or Methodology use: describe the criteria followed; standards used;
work done in testing; documents used (reviewed) etc.
 Findings and Recommendations: For each finding, describe the condition;
criteria; cause and effect/impact. Recommendations should address the cause to
improve operations, and is shown in a separate sub-paragraph.
 Conclusion/Summary:
 This show the auditors’ evaluation of the effect of the findings on the activity audited (The overall
implications).
 Should focus on audit objectives and any qualifications.
 Can also focus on clients accomplishment in relation to previous findings, compliance and
achievements of operations (Here the auditor can show the noted strengths of the client).
 Compliance plan: Agreement between auditor and client on the implementation
of the auditor’s recommendations as part of management responses. It show area of
improvement, responsible person, action to be taken and time frame, name and
signature of both parties (client & auditor). [where possible the compliance plan can
be signed between Head of Internal Audit and the Head of audited entity].
 Acknowledgement: General statement to show the appreciation for
cooperation/assistance extended by client to the audit team during time of audit
(Note: it should not mention specific individuals).

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Signature: Signed after the audit examination

completed. Should be signed by the authorized
internal auditor and showing his/her name after
his/her signature.
Appendixes: Any relevant information that
clarifies the finding/ observation can be shown as
appendix to the report. This must be cross-
referenced in the report by number or letters (eg.
Appendix 1 or Appendix A)

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 Phase 4: Audit follow-up

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Sometime referred as Recommendation Audit.

 It assumes all steps like any other audit engagement.

 The objective is to review and verify the Implementation of

audit recommendation.
 It is the last phase of audit engagement. However The Audit
Engagement is completed/closed when all
recommendation has been fully implemented.

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