Question

audit cycle Crossties of

1-Gather information about the client Internal control system
2-Testing the client internal control system (Sufficiency and effectiveness)
3-Testing the financial statements.
4-Review and completion.
5-Communicate report

explain each term

Answer 1

Answer:-

Audit is simply examination of financials and internal controls of an organization by an auditor to gain assurance on the accuracy on working and reporting by the organization.Audit cycle consists of different steps the auditor needs to perform to achieve the audit objective.The audit cycle consists of :-

1.Gather information about the client internal control system:-

This is the first step in auditing.It simply means planning the audit.Initial discussion with the client is arranged to understand the internal controls in place in the organization and the high risk areas.Based on the discussion,scope of audit is defined and timelines of completion of audit are given to client.

2.Testing the client internal control system:-

In this step,usually a sample is selected from a population and a walk through is performed on the internal controls in place.Auditor has the right to dig deep while testing internal controls if he is not satisfied with the explanations given by the process owners.This step is usually the execution of the scope of audit.

3.Testing the financial statements:-

This step consists of testing of financial statements.In this step a sample is selected from a population of any area to be tested for example sales.Then the entry is tested from record to report and its process of order to cash.It is simply testing if the transactions are recorded as per defined standards.It gives assurance as to financials are true and fair and complete.

4.Review and Completion:-

In this step, audit findings are communicated to the superiors.Any area of work which is tested under the scope of audit is being reviewed by the senior and conclusion on the findings is decided in this step.Any additional testings which needs to be done are also finalised here.

5.Communicate report:-

This is the last step in audit cycle in which the audit findings are communicated to the management.Any area of improvement or any suggestion by the auditor is communicated to the management.Also, management's response on the findings is also documented in this step.