Basic Steps in preparing an Audit Report|
As discussed in the previous instalment, an Audit Report is an extremely
complex process involving the co-operation of the accounting department,
production staff and management. To better understand the rest of the
picture, read here:
An Audit is a complex and difficult process- and Simkover and Associates
are the CA firm that specializes in Small to Medium Sized Business Audits.
Contact us today to learn more.
- As a result of the review of control environment, assess the
control risk as high, medium or low, and then prepare a detailed audit
plan with the control risk assessment in mind. The detailed audit plan is
prepared for each major financial statement area (Cash, Receivables, Fixed
- Quantify the materiality level for this audit assignment which
represents the dollar cut off for uncorrected errors identified during the
audit, beyond which it is considered unacceptable for the financial
statements. Professional experience combined with knowledge of GAAP lead
to this cut off point.
- Prepare an assessment of auditor independence, and determine if
there are any unacceptable conflicts of interest. Bias must be eliminated
in order for the audit to be legitimate.
- Obtain a written management commentary on the financial
performance of the company during the year under review.
- Obtain and review all significant contracts and commitments made
by the company during the year under review.
- Conduct a "systems walk-through" for the purpose of documenting
the major internal controls in place for the major financial systems in
the company: revenue, purchases, payroll and inventory.
- While following the detailed audit plan, maintain a list of
adjusting entries needed to correct the financial statements for
significant errors discovered during the audit. Obtain management approval
for the implementation of these adjustments into the financial
- Prepare a commentary on the financial performance of each major
area versus the prior year, including sales, payroll, operating expenses
and net income. Also comment on the management commentary.
- Discuss fraud prevention with management and document the results
of the discussion.
- Summarize the state of the internal controls at the company- are
they sound or do they need to be developed?
- Prepare draft audited financial statements and notes to the
financial statements for discussion with management.
- Submit a letter of representations for management's signature,
which details the specific areas that management is confirming. For
example "We confirm that related party relationships and transactions have
been appropriately accounted for and disclosed in accordance with the
requirements of International Financial Reporting Standards."
- Prepare a Highlights Memo of the Audit Report process.
- Prepare a Management Letter which recommends various improvements
in systems and procedures to management. The findings are not mandatory,
but are highly recommended.
- Prepare finalized Audited Financial Statements, taking into
account any feedback obtained as a result of submitting the draft
financial statements to management.
Basic Steps in Preparing an Audit Report- Part Two | Simkover and Associates Chartered Accountants in Markham, Ontario