Understanding the 7 major audit phases
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By Rebecca Langdon
An external auditor passes through 7 key formalised phases when they are auditing financial
statements for clients. The purpose of this article is to explain each of these phases at a high level.
1- Audit Planning
At this stage the auditor will work with the client to establish the scope of the audit, timescales, and,
resources. Responsibilities of the auditor and client are usually outlined within an engagement
letter. There will of course be a reliance by the auditor on key resources of the client, and provision
of key artefacts.
2- Obtain Client Understanding
The auditor needs to establish a sufficient level of background information on the client to assess
materiality of risk relating to misstatement of the financial statements.
3- Risk Assessment
The auditor will perform a risk assessment which questions:
- What is the likelihood of it going wrong?
- What is the monetary value of the exposure?
4- Test of Controls
The auditor will perform tests to check if key controls are operating efficiently, and are appropriately
5- Perform Audit
This stage is where the auditor checks if the account balances are correct. They will also check
transactions and disclosures.
6- Complete the Audit
The audit is finalised and some procedures are re-performed to ensure validity. At this point, final
decisions will be made relating to the financial statement disclosures. The auditor will hold meetings
with senior management at the client to discuss the findings.
7- Audit Report
The auditor will issue a standard unqualified audit report.
As outlined above, auditors follow a formalised process in their interactions with clients. For further
information and training, please take a look at the certification programs we offer such as the CIA or CPA course.