5 Steps of the audit of financial statements

An audit is very important to be carried out by a company to provide credibility to the financial statements and provide confidence to stakeholders or shareholders that the reports presented are reliable and accurate information.

In addition, the purpose of the audit is to help improve the company’s internal controls and systems, including risk management and governance so that the company can develop in a better direction.

In the audit process itself, several things need to be done by the auditor. The following are the steps and responsibilities held by the auditor when conducting the audit of a company’s financial statements.

1. Audit engagement

The audit engagement is part of the pre-planning, which is where the auditor and the company to be audited meet to form an agreement.

At this stage, the auditor will provide an initial understanding of the risks, responsibilities, and how the financial statement audit process will be carried out. In addition, the auditor will also request various documents related to audit needs such as previous audit reports, bank statements, ledgers, and financial notes, as well as client organization charts and lists of relevant stakeholders.

1. Planning

This stage involves developing in detail the financial audit operation process based on the information contained in the documents provided by the company.

To obtain complete information, the auditor will propose an open meeting and invite the head of the department to discuss the scope of the audit and the duration of its implementation and ask for his cooperation if the auditor needs access to related applications or locations.

1. Fieldwork

After all the information is collected, the auditor will realize the audit plan that has been prepared in the previous stage.

During fieldwork, the auditor will conduct audit tests that include analytical tests to study client company data and information, tests of controls or procedures to determine the effectiveness of the company’s internal controls, and substantive tests to identify errors that may occur in the financial statements.

At this stage, employees may need to provide additional data to the auditor or answer follow-up questions if needed.

1. Preparation of reports

Each find that has been identified by the auditor will then be documented and summarized in a report. The auditor will summarize the various problems found and provide comments and solutions related to these findings to the company so as not to take wrong steps in determining what decisions need to be taken.

1. Corrective action

Corrective action is the last step in the financial audit process which is usually carried out at the closing meeting. The auditor will ensure that any issues that have been identified previously can be resolved promptly. If other problems may arise, the auditor will immediately resolve and discuss the solution with each party involved.

When your business is growing fast, shareholders are less likely to be involved in day-to-day operations and prefer to play a strategic role instead. The audit will help shareholders assess and review financial accuracy and internal control systems.

This includes efforts to find system weaknesses and non-compliance with internal procedures. In short, the audit process is a guarantee of your company’s credibility in the eyes of shareholders.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by

CA Aman Aggarwal

AKGVG & Associates