What are the Phases of an Audit?

The audit is the process of examination of the financial statements of a company. Audits are conducted to give investors and other stakeholders confidence that a company's financial reports are accurate. How an audit is undertaken can differ depending on the corporation's size and the case's complexity. However, an audit usually has a few main phases. The present article tries to clear up these all.

Phases of an Audit

The audit process may vary by company and auditor. But, the general phases of the auditing process are as follows:

Phase 1 - Planning:

The first phase of an audit is planning. After this, the Firm will engage an auditor. The Firm and the auditor must agree on the auditing process and objectives.

It can perform an internal audit in preparation for the external audit.
Having all accounts in order and the paperwork accessible makes an auditor's job easier.
An auditor also has to plan the audit to give the company an approximate timeline for the audit process.
A planned audit also informs the stakeholders when to expect to see the organization's audited financial statements.

Phase 2 - Requesting financial documents:

The auditor may ask for a list of the required documents for scrutiny. This is a preliminary list; the audit scope is not limited to these documents alone. The auditor may ask for the following documents:

Previous audited reports
Bank statements
Ledgers
Receipts
Board meeting minutes
Organizational charts

The auditor will plan the details of the audit process based on these documents. The audit plan is then drafted.

Phase 3 - Open Meeting:

An auditor may sometimes call for an open meeting with the senior management and key administrative staff.

During this meeting, the audit plan and scope may be discussed.
Problem areas, if any, may be identified.
The auditor and the management can determine an accurate time frame for the audit.
If the auditor plans to interview any staff, they would inform and discuss it with the management.

Phase 4 - On-site work:

The auditor would examine data samples in the business records. These could be entries for any random date. The transaction records are reviewed for anomalies.

The auditor may be satisfied with the results or examine the records in more detail.
If there are doubts, the auditors would question the people involved to answer satisfactorily.

Transactions are verified, and the procedures followed by the company are examined for accuracy and adherence to accounting principles. The auditor will verify the presence of internal controls in the company and check how well these controls work.

Phase 5 - Draft report:

The auditor will create a draft report based on the inspection and findings. If the auditor has found proof of fraud, financial mismanagement, corrected statements, wrong process or accounting policies, etc., they will be mentioned in this report. If the auditor has any suggestions or correct processes and procedures, they will be listed in the report. Note: It is at the discretion of the management to implement these suggestions.

Phase 6 - Additional requirements:

If the auditor needs further information, a request for more materials and information can be made. If the other requirements satisfy the auditor, changes to the draft report can be made. Once this step is completed, the auditor's report cannot be changed or corrected.

Phase 7- Publishing report:

In this phase, the final auditor's report is published to state the auditor's opinion. It is usually reviewed by the auditors, the management, and the people involved in the accounting process before publishing. The final report is published and presented to the investors and management. The investors are usually given a consolidated report rather than the detailed report.