I would like you to express The purpose of each step in the audit process in a single paragraph
Suggest a new Definition Show Proposed definitions will be considered for inclusion in the Economictimes.com Definition: Audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organisation. Description: Audit can be done internally by employees or heads of a particular department and externally by an outside firm or an independent auditor. The idea is to check and verify the accounts by an independent authority to ensure that all books of accounts are done in a fair manner and there is no misrepresentation or fraud that is being conducted. All the public listed firms have to get their accounts audited by an independent auditor before they declare their results for any quarter. Who can perform an audit? In India, chartered accountants from ICAI or The Institute of Chartered Accountants of India can do independent audits of any organisation. CPA or Certified Public Accountant conducts audits in USA. There are four main steps in the auditing process. The first one is to define the auditor’s role and the terms of engagement which is usually in the form of a letter which is duly signed by the client. The second step is to plan the audit which would include details of deadlines and the departments the auditor would cover. Is it a single department or whole organisation which the auditor would be covering. The audit could last a day or even a week depending upon the nature of the audit. The next important step is compiling the information from the audit. When an auditor audits the accounts or inspects key financial statements of a company, the findings are usually put out in a report or compiled in a systematic manner. The last and most important element of an audit is reporting the result. The results are documented in the auditor’s report.
Relevant to Papers FAU, F8 and P7 This article outlines and explains the concept of audit risk, making reference to the key auditing standards which give guidance to auditors about risk assessment Identifying and assessing audit risk is a key part of the audit process, and ISA 315, Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment, gives extensive guidance to auditors about audit risk assessment. The purpose of this article is to give summary guidance to Paper FAU, Paper F8 and P7 students about the concept of audit risk. All subsequent references in this article to the standard will be stated simply as ISA 315, although ISA 315 is a ‘redrafted’ standard, in accordance with the International Auditing and Assurance Standards Board (IAASB) Clarity Project. For further details on the IAASB Clarity Project, read the article 'The IAASB Clarity Project' (see 'Related links'). WHAT IS AUDIT RISK?According to the IAASB Glossary of Terms (1), audit risk is defined as follows: ‘The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit risk is a function of material misstatement and detection risk.’ WHY IS AUDIT RISK SO IMPORTANT TO AUDITORS?Audit risk is fundamental to the audit process because auditors cannot and do not attempt to check all transactions. Students should refer to any published accounts of large companies and think about the vast number of transactions in a statement of comprehensive income and a statement of financial position. It would be impossible to check all of these transactions, and no one would be prepared to pay for the auditors to do so, hence the importance of the risk‑based approach toward auditing. Traditionally, auditors have used a risk-based approach in order to minimise the chance of giving an inappropriate audit opinion, and audits conducted in accordance with ISAs must follow the risk‑based approach, which should also help to ensure that audit work is carried out efficiently, using the most effective tests based on the audit risk assessment. Auditors should direct audit work to the key risks (sometimes also described as significant risks), where it is more likely that errors in transactions and balances will lead to a material misstatement in the financial statements. It would be inefficient to address insignificant risks in a high level of detail, and whether a risk is classified as a key risk or not is a matter of judgment for the auditor. RELEVANT ISAsThere are many references throughout the ISAs to audit risk, but perhaps the two most important audit risk-related ISAs are as follows: ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with ISAs ISA 315, Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment The requirements of ISA 315 are summarised in the following table. Let us
consider each of these four stages in more detail. 1. Risk assessment procedures Making inquiries of management and others within the entity Analytical procedures Observation and inspection ISA 315 requires that risk assessment procedures should, at a minimum, comprise a combination of the above three procedures, and the standard also requires that the engagement partner and other key engagement team members should discuss the susceptibility of the entity’s financial statements to material misstatement. Key risks can be identified at any stage of the audit process, and ISA 315 requires that the engagement partner should also determine which matters are to be communicated to those engagement team members not involved in the discussion. 2. Understanding an entity 3. Identification and assessment of significant risks and the risks of material misstatement
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