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Basic Steps in preparing an Audit Report

There are many steps involved in performing an Audit Report- and while each case is unique and has its own specific requirements, the following lists SOME of the more common steps involved in preparing an Audit Report.
  • Preliminary client meeting- Meet the client and outline the steps necessary to complete the Audit Reporting process.
  • Obtain a complete and accurate organization chart of the business to be reported on. Understanding how the business works is just one essential step in the process.
  • Prepare the chart "Understanding the Entity" which lists company information, industry conditions, and operating characteristics for revenue, purchases, payroll and inventory transactions.
  • Establishment of the key areas to consider in the audit, as a result of the client meeting and the initial research of the company. There is no need to count the paperclips- unless you make the paperclips!
  • Establishment of start and completion dates with the client- An audit will place a strain on your companies' accounting department so choose your dates carefully!
  • Submission of engagement letter detailing the terms and conditions of the project.
  • Conduct a preliminary financial analysis of the business. This is where many audits first come across issues and concerns as undisclosed flaws are discovered and irregularities rise to the surface.
  • Review of systems and internal controls- the mechanisms by which a company reports on its own financial activities- good systems result in less work for the auditor and save the client on audit fees. Poor systems often lead to discrepancies and a higher probability of financial fraud.
  • Review of control environment- Does management respect and adhere to the internal control systems that help the business to run?
  • Review of fraud prevention procedures- what systems are in place to prevent the numbers from being manipulated to the ultimate detriment of the business and its shareholders?
  • In light of the previous reviews, conduct a "risk assessment" which details the principal areas of the audit that require more attention due to significant potential problems- if systems are lax in certain areas, additional steps must be taken to compensate for this.
  • Review of board of directors minutes for the year with a focus on all financial items and decisions made over the year.
  • Review of significant financial events subsequent to the fiscal year as these must be brought to the attention of the reader of the financial statements even though they occurred after the time period being audited.
  • Identify the specific areas that need more attention as a result of the preliminary financial analysis. What irregularities were there? Is more information needed or does the accounting department need to perform an additional step to allow the audit to proceed?
This is the end of Part One "Steps in an Audit Report". The conclusion will follow in Step Two "Finishing the Audit Report".
Basic Steps in Preparing an Audit Report- Part One | Simkover and Associates Chartered Accountants in Markham, Ontario

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