The 7 Stages of Planning an Audit

The planning of an audit is a fundamental part of completing a successful assignment. The process can be broken down into the following stages;

Stage 1- Appointment

The main focus of this stage is ensuring that there are no factors that prohibit the assignment from commencing. The following procedures are carried out as part of this stage;
  • Ensure client due diligence and anti- money laundering information is up to date.
  • Review whether there are any Ethical threats to the assignment and where such threats occur, are there safeguards that can be applied to allow the engagement to continue.
  • If there was a different auditor in place in the prior year, has sufficient appropriate evidence been obtained concerning the opening balances. In such instances, professional clearance should be obtained from the outgoing auditor.
  • A letter of engagement is prepared and signed.

Stage 2- Risk Assessment

This stage involves an assessment of the company’s situation from various sources with a view to determining the overall audit risk. This stage involves;
  • A review of issues arising in previous years.
  • A review of the permanent audit file of the company and any relevant correspondence during the year.
  • Discussions with management on any relevant issues which occurred during the year.
  • A review of draft financial information to compile a preliminary analytical review.
  • A review of the internal controls in place in the company.
  • A calculation of materiality
  • A preliminary assessment of going concern.

Stage 3- Audit Approach

Following on from stage 2, should be a summary of the key audit risks and how these risks affect the planned approach of the audit. The overall risk (including fraud risk) should be assessed as low, medium or high. For each individual financial statement level, a planned audit approach should be documented. All risk areas should have an appropriate plan to deal with that risk. The work program of the audit should be driven by this. Another matter to be considered at this stage is the framework on which the financial statements will be prepared and if reduced disclosure options are available.

Stage 4- Administration

An appropriate staffing plan should be put in place for the assignment (with appropriate skillsets and experience assigned to the team). A timetable for completion of the job should be agreed with the client.

Stage 5- Audit team briefing

A team meeting sets out the planned audit approach, the key risk areas, how these risks will be addressed and clarifies each members role in the assignment.

Stage 6- Client Service

Consider whether any useful recommendations can be made to the client regarding any issues identified.

Stage 7- Client Communication

The client should be notified of any changes in the nature/scope of the assignment. In addition to this, the information required by the audit team is communicated to and agreed with the client.

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