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Internal Control in Audit Process of Financial Statements
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Financial Audit Process is a series of the following pre-defined steps
for producing assurance about the reliability of financial statements and
for presenting the assurance obtained as required by legislation, regulations,
and reporting framework (rules) and the audit standards [1]: |
| 1. |
Audit's Strategic Planning. Familiarize with the client's business and its environment;
objectives, accomplishments, and profitatibily; organization; rules;
and processes and their control information [2].
Based on all that information, rules, audit standards, and the audit engagement determine
what information you still need in order to determine,
what are the important areas and matters for the audit in terms of audit assertions [3].
Get the lacking information and draft an audit strategy.
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| 2. |
Audit's Operative Planning.
Plan how to implement the audit strategy
under constraints of resource budgets and schedules: what to do, when, where, how, and by whom.
Make adjustments to audit strategy when needed.
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| 3. |
Book-keeping related Audit Evidence Gathering.
Evaluate internal control of book-keeping and [selected] systems that produce entries in it.
Guided by the audit's strategic plan perform tests of controls, substantive tests,
and analytical procedures of transactions and related payments and balances.
Inform the client about the results of the tests so that its staff
can avoid non-compliance with rules and
significant errors and deficiencies that effect financial statements.
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| 4. |
Financial Statements related Audit Evidence Gathering.
Evaluate internal control of the financial statement preparation process.
Address general and client specific risks that would make financial statements not fairly stated.
Check whether all the information required by rules will be disclosed.
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| 5. |
Completion of the Audit.
Make conclutions, perform additional [analytical and other] audit procedures when needed,
and issue an appropriate report.
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Here audit process of financial stamements is examined in the light of International Standards on Auditing (ISA).
Considerations of ISA 200 (Quality Control for an Audit of Financial Statements) and
ISQC1 (International Standard on Quality Control 1) shall be built into the audit process.
All the phases above contain inherently consideration of materiality and audit risk and possibility of fraud,
documentation of plans, work done and conclusions and auditor's communication.
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[1]
The phase "Acceptance and continuance of client relationships and specific engagements"
is left outside of this exercise
[2]
Control information tells
whether basic objectives of a process are being attained
in an acceptable way or not, and what problems or other things worth attention have emerged
(The ECAR 2 Document, page 8).
[3]
Preconditions for reliable financial statements:
e.g. that only transaction that have occurred are included in accounts.
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