What is the Audit Process?

The audit process is the series of steps followed by an auditor in order to conduct an audit engagement with a client. Audit processes are also used by an internal audit department when conducting internal audit projects within a business. The exact steps followed will depend on the nature of the audit engagement, but typically follow the general steps noted below.

Step 1. Request General Information from the Client

The audit team begins by requesting a variety of information from the client, in order to gain a reasonable overview of its operations. This can include meetings with key client personnel in order to learn more about targeted areas. It may also include a review of the audit documentation from previous years, since other auditors might have already researched the issues in those years.

Step 2. Understand the Operating Environment of the Client

The audit team examines the client’s system of internal controls, to assess the various risk levels of the client’s functional areas. This information is needed to design the tests to be used later in the audit process. If the client’s system of controls proves to be relatively weak, then the auditor will need to plan for a greater range of tests to offset the perceived control weaknesses. Adding these tests will likely increase the cost of the audit.

Step 3. Prepare an Audit Plan

Based on the information gleaned in the preceding steps, the audit team creates an audit plan that describes the various tests that will be conducted. This plan incorporates the team’s decisions about the extent to which the client’s system of controls can be relied upon.

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Step 4. Conduct Fieldwork

The audit team uses the audit plan as the basis for its fieldwork. The results found during each phase of the fieldwork may modify the type and extent of tests conducted through the remainder of the fieldwork. The team documents its work in a set of working papers, which are organized and stored after the audit has been completed. These working papers are useful for justifying the conclusions reached, as well as to provide a source of information for other auditors engaged in the same work in subsequent years.

Step 5. Review the Audit Results

The audit manager discusses any findings from the fieldwork with the client. This may result in additional tests, as well as the creation of a management letter that describes any issues found. This discussion with the client can result in additional information being forwarded by the client, which may impact the tests conducted and the contents of the management letter.

Step 6. Draft an Audit Report

The audit team drafts an audit report, which is reviewed by audit managers along with the supporting workpapers. This review may result in additional fieldwork being conducted, possibly resulting in another iteration of the audit report. The additional iteration occurs when the review unearths additional issues that must be investigated.