The audit process for a financial audit engagement progresses in discrete stages which differ in the kinds of work performed by the appointed auditor and the level of input required from the reporting entity. The AUASB auditing standards and directives from the corporate regulator and peak industry bodies will identify the appropriate audit process, and relevant audit procedures, depending on the scope and nature of the audit engagement. Kingston & Knight Audit is firmly committed to delivering independent, external financial audit services which comply with the increasingly strict audit quality requirements for Australian corporate entities.
This linear and standardised approach to the financial audit process is integral to the maintenance of audit quality, that is, ensuring that the reporting process functions to reinforce stakeholder confidence in the entity’s financial position. External audit services ensure that investors, regulators, ownership and other users of financial reports may be given reasonable assurance as to the honesty and fairness of assertions made in the reports. This assurance can inform important decisions not only by an entity’s ownership and key stakeholders, but also those that are critical in the functioning of financial markets more broadly.
This page gives a brief overview of the audit process as it would apply to a financial audit engagement, with a focus on audit planning procedures which set the scope and nature of the appointed auditor’s work.
Each audit engagement begins with consultation by the parties, usually the client entity’s audit committee and the appointed independent auditor, which evaluates engagement risk in relation to special circumstances such as legal proceedings, current management situation, staffing requirements, and acknowledgement of auditor independence. These circumstances must be explored and agreed upon for the financial audit to comply with the standards, and so that an accurate estimation of the timeframe for the engagement can be disclosed.
Following this initial consulting phase, the appointed auditor will provide the client / audit committee with an engagement letter that sets out the audit timeframe, agreed-upon procedures and respective responsibilities, as well as the cost of the engagement.
The audit plan is perhaps the most important part of the audit process, with strict standards and regulatory requirements being applicable to the appointed auditor’s planning work. The client entity’s circumstances, including size and structure, will determine how time consuming and complex the audit plan process will be. For example, if the client is a new entity with relatively simple reporting requirements, the planning process will be less involved than if the entity has more history and overall more complex financial circumstances.
The external auditor will then create conduct a range of tests and analytical procedures designed to provide insight into the entity’s operations, market environment, and internal systems and processes. These procedures will enable the auditor to calculate risk of material misstatements being present in the financial statements. If these procedures result in the auditor forming an opinion that audit risk is acceptably low, they will then compile a provisional audit plan and document the required audit procedures in-light of their initial examination of the entity.
Audit procedures are work performed by the auditor in accordance with the audit plan, which should be revisited and amended when a change in audit procedures is called for. Various tests of financial data, such as sampling transactions and asset statements, are performed using the audit procedures relevant in the circumstances. Analytical and / or substantive procedures are essentially used to document and explain observed trends in the entity’s financial data, the strength and direction of relationships present in the data and explore risks of material misstatements.
These procedures are complex and often require input from the entity to be carried out properly. For this reason, audit procedures are performed and documented during the part of the audit process in which the auditor works at the entity’s place of business.
Once the requirements of the financial audit engagement are fulfilled, with work outlined in the audit plan completed and documented in accordance with the standards, the external auditor will begin to compile their findings and opinion into the final auditor’s report.
The final audit report is delivered at the end of the audit process, setting out the independent auditor’s findings and opinion about whether the entity’s financial statements contain any material misstatements. Like the rest of the audit process and audit procedures, the audit report must be completed in-accordance with the auditing standards and regulatory requirements. These set out the structure and contents of the audit report, including what must be disclosed (e.g. an opinion on whether the financial report provides a fair view of the entity’s finances), as well as the circumstances of the engagement and work performed by the independent auditor.
The audit report must also explain how auditor independence and adherence to the auditing standards were maintained throughout the engagement. This enables users of the audit report, and financial statements, to obtain reasonable assurance that the presented information can be trusted for decision-making purposes.
As with the audit plan and procedures, the audit report will differ in its complexity according to the scope and nature of the financial audit engagement. Contact Kingston & Knight Audit on 1800 283 471 or email at firstname.lastname@example.org .to receive a free telephone consultation and advice on the audit process applicable to your entity’s reporting requirements.