There are five audit stages in an audit engagement that correspond to the five critical decisions made by auditors during the course of an audit engagement. The stages and the decisions made in each stage are:
Based on a preliminary knowledge of the client's business, the auditor undertakes various activities, the primary objective of which is to determine whether to accept or reject a prospective client (or retain or relinquish an existing client) - the accept/reject decision.
Based upon a detailed knowledge of the client's business, the auditor undertakes various activities, the primary purpose of which is to decide upon an appropriate audit approach for each account balance assertion.
This stage is only applicable where the audit approach includes reliance on one or more control procedures. In such instances, the auditor gathers evidence as to the effectiveness of operation of the control(s). Where the controls are not as effective as was believed in the planning stage, the auditor will alter the planned audit approach. This is thus the decision as to whether reliance should continue to be placed upon the management's internal control procedures.
In this stage, the auditor gathers substantive evidence (i.e. evidence as to the completeness, validity and accuracy) of individual account balances and underlying classes of transactions for the purpose of determining the extent of misstatements in the individual account balances.
In this last audit stage, based upon an evaluation of the extent to which the financial statements are consistent with the auditor's knowledge of the entity, including the auditor's conclusions concerning the extent of misstatement in individual account balances, determined in the previous stage, the auditor forms an opinion on the financial statements as a whole - the audit opinion decision.
Copyright, Australian Educational Research Pty Ltd. Any person accessing this site agrees to the Terms of Use.