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Exploring the four stages of the audit process

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Internal Audit is an independent map that provides an nonsubjective confidence and consultancy activity to better and add value on an organisation ‘s operation.A The hearers aim to assist the Merami Berhad carry through its aims by measuring the effectivity of its hazard direction, control, and administration procedures by conveying a subject, systematic attack. The audit procedure is divided into four phases which are Planning ( Preliminary Review ) , Fieldwork, Audit Report, and Follow-up Review. One of the chief key aims to transport out an audit is to minimise the clip and avoid interrupting on-going activities.

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As we are a public accounting house for Merami Berhad for the past five old ages. Meramin Berhad is a public listed company, whose gross revenues for the twelvemonth 2009 were over RM 25 million. The audit fees we usually charge to Merami Berhad are RM 50,000. Before an audit is assigned to staff, the hearer must see a few affairs such as the size of the company to be audited.

If it is a Public Listed Company, 3 or 4 staff will be required. Besides that, the budget is really of import as the hearer are ever advised to remain within the budget so that the audit fees is sufficient to cover all the cost incurred particularly the expenses. The hearer should besides see about the deadline. An audit assignment normally has really tight deadlines and therefore staff must guarantee that the Audit Report is submitted to the Partner of Review on clip so that the sign language of histories is non delayed.

When the audit director assigns a occupation to the senior, the first thing the senior does is to run into with his squad members to discourse about the occupation and to depute responsibilities to the several members. The audit helper will usually be asked to recover the old twelvemonth ‘s file of the company from the filling room. The old twelvemonth file is ever used as a usher merely. Staff must ever sew the audit for the twelvemonth harmonizing to the events that occurred during the twelvemonth. Once the last twelvemonth ‘s file is retrieved, a new file will be opened for the current twelvemonth ‘s audit.

Phase 1: Planning ( PREMILIRARY REVIEW )

Planning is indispensable as this is the first clip we understand Merami Berhad concern and their controls in the company. During the planning phase of the audit, the auditorA will reach the client to notifyA them of an approaching audit and to schedule a clip during the twelvemonth that is most convenient for the audit to commence and take topographic point. The hearer will direct them a preliminary checklist. This is a list of paperss ( e.g. organisation charts, fiscal statements ) that will assist the hearer learn about their unit before be aftering the audit. After reexamining the information, the hearer will be after the reappraisal, conduct a hazard workshop chiefly to place cardinal hazards and raise hazard consciousness, bill of exchange an audit program, and schedule an gap meeting.

Engagement Letter

Merami Berhad is informed of the audit through anA proclamation or engagementA missive from the Internal Audit Director. This missive communicates the range and aims of the audit, the hearers assigned to the audit, the audit methodological analysis used in the audit and other relevant information. This missive serves as a contract which outlines the duties of the hearer and client to forestall any unneeded misinterpretation of what is expected or required of the other party. The hearer and the client must besides hold on the footings of the battle.

Opening Conference

Nearer the start of the audit, the hearer will set up a meeting with Merami Berhad to discourse the range and aims of the audit. The gap conference should be held to garner information about the mission, critical procedures, and control processs of the unit to be used in the preliminary study procedure. The gap meeting should include senior direction and any administrative staff that may be involved in the audit. Merami Berhad describes the unit or system to be reviewed, the organisation, available resources ( forces, installations, equipment, financess ) , and other relevant information.

The audit senior normally discusses with the client about the company ‘s public presentation for the twelvemonth in footings of addition or lessening in profitableness. This may due to factors runing from establishing of new merchandises during the twelvemonth to high-position staffs go forthing the company. These will wholly be documented in the Business Understanding Document.

The internal hearer meets with the senior officer straight responsible for the unit under reappraisal and any staff members he wishes to include. It is of import that the client place issues or countries of particular concern that should be addressed. The clip frame of the audit will be determined, and we should discourse any possible timing issues ( e.g. holidaies, deadlines ) that could impact the audit. The gap conference is an of import measure in a regular audit. It is an chance to set up the proper tone and to get down constructing good relationships.

Preliminary Survey

In thisA phaseA the hearer gathers relevant information that they have gained from the gap conference is used in concurrence with other relevant information about the unit in order to obtain a general overview of operations. He talks with cardinal forces and reappraisals studies, files, and other beginnings of information. This may include information on budgets and strategic programs every bit good as past audit reports.A There are certain hazards that the hearer will ever reexamine to guarantee that they are being adequately controlled and managed – these include fiscal minutess, local hazard direction and concern continuity planning.

Internal Control Review

All of this information is so used to do a preliminary appraisal of the hazards and controls for Merami Berhad unit. The hearer will reexamine the unit ‘s internal control construction, a procedure which is normally time-consuming. In making this, the hearer uses a assortment of tools and techniques to garner and analyse information about the operation. The reappraisal of internal controls helps the hearer determine the countries of highest hazard and design trials to be performed in the fieldwork subdivision. In the involvements of quality and consistence, the Head of Internal Audit reviews this work and agrees the range of work to be carried out.

Audited account Program

Preparation of theA audit programA concludes the preliminary reappraisal stage. The audit plan establishes theA proceduresA necessary to finish an efficient and effectual audit. It includes a elaborate program of the work to be performed every bit good as the stairss required to accomplish the audit aims. There should be sufficient item for less experient staff to execute the stairss nevertheless it should non be excessively elaborate whereby it might do hearers to put to death stairss routinely and overrule their judgement.

Phase 2: Fieldwork

Transaction Testing

Gross Cycle

Gross saless process and hard currency reception dealing are the 2 checking processs under gross rhythm.

Gross saless Procedure

A gross revenues citation provides a pre-sales processing environment which allows prospective purchasers to analyze the costs involved for a completion of work. A gross revenues citation typically consists of information like measure, point and its description, unit monetary values and etc. Many concerns can non hold an upfront monetary value for the service they provide. Therefore, sale citation should be provided by companies to its clients to give them an estimation of the cost involved.

In add-on, a bringing order is written waies from a consigner or shipper of a cargo to a bearer or cargo forwarder to let go of the cargo to the named bringing party in freight-prepaid cargo. It allows direct bringing of goods to the bearer or warehouser.

Bills are basically a elaborate measure left by sellers and outside provider for goods or services rendered to a company under gross revenues process. The papers may be called a “ Gross saless Invoice ” , from the point of position of the seller, or a “ Purchase Invoice ” by the purchaser. A typical bill might name the measure of each point, monetary values, billable hours, service description and a contact reference for payment. While some disbursals may be paid through an histories collectible section by the posted due day of the month.

Besides, hard currency sale can be used in several different contexts. A hard currency sale has to make with the purchase of goods or services and involves the immediate ownership of the new proprietor, without any hold in clip between purchase and presuming full ownership in merely about every state of affairs. In the universe of finance and in retail state of affairss, people are engage in hard currency gross revenues on a delay footing,

Segregation of responsibilities is critical to effectual internal control. It reduces the hazard of both erroneous and inappropriate actions. The handling of hard currency grosss and accounting for such receptions need to segregate. This is to cut down the likeliness that mistakes will stay undetected by supplying an accounting cheque over the reception of hard currency. For illustration, those who handle hard currency grosss would non hold the authorization to fix or subscribe checks, would non hold entree to accounting records and would non be involved in accommodating bank histories. If a individual has entree to both the hard currency grosss and the histories receivable records, it is possible for hard currency to be diverted and the deficit of hard currency in the accounting records to be covered which can ensue in larceny of the entity ‘s hard currency. In the other manus, for those who perform gross revenues activity including those who maintain contact with clients and issue gross revenues orders, would non execute any recognition blessing, charge, transportation, recognition memo, hard currency grosss and accounting activities.

Cash Receipt Transaction

Most concern clients pay by check or electronically. Cash grosss are merely given to admit hard currency payments ; which are seldom made by concern clients. Cash registry and safe-deposits are frequently used as precautions here. In order to forestall fraud and mistake, different employees should be responsible for having and entering hard currency aggregations here.

The intent of forestalling fraud and mistake is the cogency, completeness, seasonableness, mandate, rating, categorization, posting and summarisation. It ‘s really of import to the hard currency reception dealing.

The hearer can look into monthly bank rapprochement to forestall any recorded hard currency grosss non deposited in order to guarantee the cogency of the hard currency reception dealing. For case, misstatement in gross revenues that may happen includes fabricated sale being recorded in the history o f a regular client.

Outgo Cycle

There are two look intoing processs under outgo rhythm, which are buying process and hard currency expense dealing.

Buying Procedure

A purchasing dealing usually begins with a purchase requisition generated by a section or support map. A buying order is so the purchase of goods or services from a provider. Equally shortly as the goods and services have been rendered, the entity records a liability to the provider and wages subsequently.

Basically, there are three types of for purchase minutess which are the purchase of goods or services on hard currency or recognition, payment of the liabilities originating from such purchases and return of goods or services. The 2nd type is hard currency disbursement dealing to clear liabilities ensuing from purchase of goods or services. The concluding type is a purchase return dealing which involves the return of goods antecedently purchased to supplier for hard currency or recognition.

Good segregation of responsibilities must be done in order to forestall peculation or any deceitful activities. First, a buyer who orders should non be the individual who receives goods. This can forestall the buyer from puting inordinate orders and maintaining the remainder of goods. Next, a individual who purchases points should non be the individual who writes the checks for it. This can avoid the individual from making orders and do payments to fabricated companies. Then, the individual who writes checks should non manage the rapprochement. This is because cipher will aware even if he writes checks to himself or relations.

Cash Disbursement Transaction

Cash expense can be defined as paying out of financess in a discharge of a debt or disbursal. Transaction Related Audit Objective ( TRAO ) is used here to measuring the being and quality of controls. The hearer ‘s transaction-related audit aims follow and are closely related to direction averment. That is because the hearer ‘s primary duty is to find whether direction averments about fiscal statements are justified. These transaction-related audit aims help the hearer accumulate sufficient competent grounds required by the criterion of fieldwork and make up one’s mind proper grounds to roll up for categories of minutess with a model.

In order to guarantee the cogency of the hard currency expense dealing, the hearer tests the cogency of purchase minutess whether there is any fabricated or non-existent purchases may hold been recorded in the client ‘s records. Assetss or disbursals will be overstated if deceitful minutess are recorded.

As for Completeness, hearer must guarantee that purchase that has been made in recorded consequently. If fail to make so will take to minimizing of assets or disbursals, and the corresponding histories collectible will besides be understated.

As for Timing, a timing mistake occurs if minutess are non recorded on the day of the months the dealing took topographic point.

As for Authorization, the individual who has authorization to O.K. purchase should non hold entree to hard currency expense for the purchase.

As for Valuation, appropriate methodological analysis is used to cipher minutess and to reexamine assorted rapprochements. The rating of accumulations depends on the type and the nature of the accumulated disbursals.

As for Classifications, the major issues related to the presentation and revelation averments are placing and reclassifying any material debits contained in histories collectible. For case, segregation of buying and hard currency expense diary is important to guarantee that right sum would be allocated decently. If purchase minutess are non decently classified, assets and disbursals will be misstated.

As for Posting and summarisation, control tools should be used to accommodate verifiers to the day-to-day histories collectible listing or else the day-to-day posters to the purchases diary should be reconciled to the histories collectible subordinate records.

Income Statement or Profit and Loss Account

First of wholly, the hearer should find and seek to happen out the major alterations or the alteration that would impact the normal relationship has been made in the production and gross revenues country. Audit helper are responsible to manage on observe the important accommodation in the policies of company that would impact the point stated in the income statement. After analysing on such accommodation to guarantee that no stuff mistake is found so it will go on continue to the concluding phase of the audit subdivision. For illustration, important alterations in employee benefits might impact wages and employee compensation and have an consequence on the income statement.

Other than look intoing in the income statement of a company, the hearer would besides look into the balance sheet on the assets and liabilities. Before the hearer start to work on it, a transcript of client ‘s balance sheet should be prepared to working documents.

There are processs of transporting out an audit on assets and liabilities. Hearers should categorise each point in the balance sheet consequently to the audit checklist.


All of these are the constituents of assets.

For Cash in Bank

To guarantee the information that stated in the column of the balance is complied what it truly had in the bank, a verification petition missive will be sent to all the related bank which the entity had covering with within the fiscal period. In add-on to acquire confirm to relevant bank that the balance in the bank of the company, the hearers besides can acquire an chance to bespeak the bank to supply other information such as the securities that the company held in the guardianship.

The response from the bank give the company a gold grounds to turn out that hard currency at bank that stated in the balance sheet is complied with the existent sum in bank at the balance sheet day of the month. With the cooperation of bank, the verification of hard currency on sedimentation provides grounds to the being of hard currency at bank and as to rights and duties. If the balance per bank statement is different, bank rapprochement would hold to be done by the audit helpers.

For Account Receivable

A inside informations list of history receivables balances of the client should be obtain before the hearer and entree to the balance. The hearer will follow sums to comparative sum-up of histories receivables balance and randomly select clients ‘ history from the listing to direct itemized statements to acquire the response or verification of the balance. Review the verification answers missive from them and trial histories where there are no answers. Keep path with the possible bad debts to be written off, if exist, look into the gap balances once more.

For Inventories

When stock list is material to the fiscal statements, the hearer is required to go to the entity ‘s physical stock list numbering unless it is infeasible. Examine client ‘s physical stock lists count find whether the client ‘s numeration methods are effectual. The intent of stock list attending is to enable the hearer to obtain audit grounds sing the being and status of the stock list and see if there is any obsolescence in it. The hearer may choose a sample of stock list points from the client count records and follow them to the ageless stock list records for look intoing intents.

For Prepayment disbursals

Randomly take the official grosss or paperss that can back up prepayment disbursals and trial on it. Then, direct conformation missive to conform the sum due.

For Non – Current Assets

The hearer should obtain a list of fixed plus ‘s disbursals that registry under the client ‘s company such as depreciation charges, loss or addition on the disposal of the fixed plus, net book value, reappraisal sum and etc. The reappraisal done should be back by the grounds or certification authorized by the professional. Check to invoice and hold to the description, monetary value, day of the month and etc. The physical being and the status of the assets should be cheque and find whether it is located at company ‘s premises. As for disposal of fixed assets, guarantee that there is proper mandate and that net income or loss on disposal is decently recorded.


For Short – Term Notes Payable

A bank conformation missive should be sent out to ask loan balance position of the company. Hearers have to cipher the principal and involvement paid to look into whether it comply with the figure in the balance sheet.

For Long – Term Debts

Review the loan understanding and direct the attending to the relevant information to get the accurate involvement charged based on the nominal involvement rate computation and hearer have to be guaranting that the involvement rate stated in the income statement same with the consequence of computation.

For Income Tax Account

The certification of the dealing of the company is required to maintain for lower limit 7 twelvemonth required by jurisprudence. Client is required to demo certification and support for every facets of company ‘s revenue enhancement return. For illustration, if the client claims itemized tax write-offs, grosss for those tax write-offs must be produced. In add-on, to justifications for why the taxpayer felt that those tax write-offs were legitimate. Besides that, taxpayers must open their accounting methods to review and show that all of their income was in fact decently documented and claimed on the revenue enhancement return. This can be done through proper recording and categorization for proviso for revenue enhancement and deferred revenue enhancement.

Advice & A ; Informal Communications

As the fieldwork progresses, the hearer discusses any significantA findingsA with the client. Hopefully, the client can offer penetrations and work with the hearer to find the best method of deciding the determination. Normally these communications are unwritten. However, in more complex state of affairss, memos and/or electronic mails are written in order to guarantee full apprehension by the client and the hearer. A batch of information is shared via electronic mail, of class, but there is more face-to-face conversation.A Other than that, I would wish to advert for this communicating inquiry is linguistic communication. Most communications with a greater group of people ( and formal meetings ) are held in English ; nevertheless it depends a batch on who is talking if you will understand that individual. Besides if it is merely me and, says, two other Indians, it is really likely that they switch to Hindi or Kannada ( local linguistic communication ) without detecting. I so sometimes have to remind them to remain with English. Distinguishing between first and family names is besides impossible for me, same with make up one’s minding if a name is male or female – I merely have to think or happen some “ impersonal ” ways to turn to or inquire for people. In peculiar instances, we may besides supply bill of exchanges of organisations charts, proposed signifiers or alterations to signifiers, fiscal informations or other statistics, or bill of exchanges of findings and recommendations that later may be incorporated into the formal audit study. These are all considered informal communications between the hearer and the client. Their intent is to advance constructive communicating and avoid misinterpretations. Our end: NO SURPRISES.

Audit Summary / Financial Monitoring

Upon completion of the fieldwork, the hearer summarizes the audit findings, decisions, and recommendations necessary for the audit study treatment bill of exchange. Write a drumhead memo to document the consequences of fieldwork. Conclude as to whether the information reported by the province bureau in the Section 1512 studies is accurate, dependable, and seasonably. The audit drumhead gives an overview of all work done sheets harmonizing to their subjects. The audit drumhead templet gives the rubric, the audit figure, the subject of the drumhead and of the work done sheets, and the creative activity day of the month. In add-on to the work done sheets, the audit sum-up besides contains a sum-up of the observations and findings every bit good as an overall appraisal and decision of the audit consequence. Before composing the audit sum-up, hearers should hold the working documents on which the sum-up is based with their audit lead.

Working Documents

Working documents are a critical tool of the audit profession. They are the support of the audit sentiment. They connect the client ‘s accounting records and financials to the hearer ‘s sentiment. They are comprehensive and serve many maps. The consequence of audit activities must be documented truthfully, systematically, clearly, and wholly, with a comprehendible description of all stuff inside informations. This involves both the contents of a fieldwork activity and the process itself. This certification of fieldwork activities is referred to as “ working documents ” to show its connexion with the work consequences. The basic demands for proper certification use to all types of fieldwork activities, although there are different types of paperss, depending on the nature of the audit. In add-on to the working documents which are compulsory, other paperss can be created as optional supernumeraries ; they contain information beyond the minimal information demand. The on the job documents are an indicant of the audit quality in general. This needs to be considered because questions by different groups of references or their petitions for information may frequently necessitate entree to this certification. Consequently, the working documents may function as treatment or grounds paperss, for illustration for questions from the Board, the unit bespeaking the audit, Internal Audit Management, the Audit Committee, or the external hearers. The readying of working documents is capable to certain organisational demands. Each hearer ever has the chief duty for fixing the paperss, both during and instantly after fieldwork. Even though the audit lead and Audit Manager have ultimate duty for quality confidence, each hearer has to fix and keep the working documents with the necessary attending to detail. Working documents may be compiled by manus or entered straight into a system ( which is usually more expedient, because it makes it easier to entree the information once more ) .


The 3rd phase of transporting an audit is to fix an audit study. After all the grounds for each of the point in the fiscal statement have been collected and proven, the senior audit and the audit helper is traveling to look into the shutting balance sum of the balance sheet and the test balance with the leger account whether they are compatible with each other and to guarantee that each figure is holding with the old twelvemonth audit history in order to fix a on the job test balance and the on the job paper. After this all process has been done, our audit helper will fix an audit study which expresses the sentiment of the hearer, grounds of audit and recommendation for the information betterment.

Discussion Draft

In order to implement this procedure, foremost the hearers will discourse to fix a bill of exchange for internal audit study to sketching the audit ‘s work, recommendation for the information that should supply and the timeframe to finish the study. The bill of exchange that prepared by the direction section will demo that who will responsible to implement the occupation, the action to be taken and the timeline to make the occupation. After the bill of exchange has been discoursing, a meeting among the hearer will be held in order to delegate the occupation to the individual selected for fixing the study and meanwhile the bill of exchange will be sent to the peculiar hearer.

Formal Draft

The study will go the concluding study if the response of the direction is integrated with the audit study bill of exchange. The of import information that nowadays in the study includes the rubric of the study, the responsibility of the direction and the hearer in fixing the study, the range paragraph that show the grounds of the scrutiny and the accounting rules use to fix the study, the sentiment paragraph which expresses the sentiment of the hearer and whether the fiscal statement is following with the statutory demand and the name, signature and reference of the hearer who fixing the study. This is to do certain that if there is any fault nowadays in the study, it is the duty of the peculiar hearer to in charge with the instance.

Concluding Report

After that, the hearer will show the concluding study to the audit commission and the transcripts of the study will direct to the senior hearer, the direction section of the audit house and our client, Merami Berhad to reexamine and acquire the blessing.

Client Response

In our study, we could include or attached the client response in the audit happening anterior to issue of the concluding study. The client should foreground how study findings will be determined and include an execution timetable in the response. However, some directors may probably to do a determination which non to implement an audit recommendation and to accept the hazards that might happen with an audit determination. For illustration, the exchequer balances are reconciled monthly alternatively of reconciled day-to-day. The differences are out of the manner and have been controlled since that day of the month. The adjusting entries are made with proper certification and reappraisal.

Client Remarks

In our study, we ever include the clients remark on our Internal Audit ‘s public presentation as it is portion of the Internal Audit ‘s self-evaluation plan. The feedback has proven to be really good to us as we improve our processs due to clients ‘ suggestion.

Phase 4: Follow-up

Followed-Up Review

These required certain actions taken to decide the audit study findings may be tested to guarantee the coveted consequence were achieved. For each point included in the followup, reappraisal position information provided by direction to find if information addresses all parts of determination and if a corrected day of the month or revised due day of the month has been provided. During this phase, we will reach unit direction to obtain any missing information. We besides evaluate action reported as taken in response to each determination to see whether the determination has been satisfactorily corrected. If necessary, develop audit trials to turn out that the determination has been corrected based on the nature of the determination and responses. The Director of Internal Audit or the hearer in charge of the follow-up reappraisal will fix a memoranda for senior direction that notifies them that audit activities are underway and depict the follow-up process.A This memo should include timeframes for the undertaking, a transcript of the outstanding findings associating to countries describing to that senior director, a petition that they distribute the findings to these countries and inquire the directors to supply Internal Audit with the information requested, a statement that these remarks were antecedently distributed as portion of an audit study or close-out missive, and presentment that the consequences will be reported to the Chancellor and Board of Trustees.A

Followed-Up Report

In the follow-up study, it lists all of the actions taken by the client to decide the original study findings. Unresolved findings will besides look in the follow-up study and will include a brief description of the determination, the original audit recommendation, the client response, the current status, and the continued exposure to board of company. A treatment bill of exchange of each study with unsolved findings is circulated to the client before the study is issued. The follow-up reappraisal consequences will be circulated to the original study receiver ‘s functionaries as deemed appropriate.

Cite this Exploring the four stages of the audit process

Exploring the four stages of the audit process. (2016, Nov 15). Retrieved from https://graduateway.com/exploring-the-four-stages-of-the-audit-process/

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