Summary of "Steps of External Audit لايف - أهم خطوات التدقيق لكل مدقق حسابات خارجي"
Summary of "Steps of External Audit لايف - أهم خطوات التدقيق لكل مدقق حسابات خارجي"
This comprehensive live session by Ahmed Marzouk, an experienced external auditor and assistant manager at Deloitte UK, covers the entire External Audit Process, key auditing concepts, and practical examination procedures for common accounts. The session is structured into three main parts:
Part 1: Overview of the External Audit Process (From Start to Finish)
- Purpose of Audit: To provide assurance that a company’s financial statements are prepared according to applicable accounting standards (Egyptian, International, US GAAP, etc.) for users such as banks, investors, suppliers, and government agencies.
- Audit Process Steps:
- Client Acquisition: The company requests price quotations (A/C or Proposals) from audit firms. Firms present their profiles, qualifications, and fees.
- Client Acceptance Procedures (AAP): Assess if the client is suitable (consider risks like political issues, legal problems, fraud history). Decide whether to accept or reject.
- Engagement Letter: A formal contract specifying audit scope, responsibilities, and client obligations (full disclosure, cooperation).
- Planning Stage:
- Understand the company and its environment: legal structure, ownership, group affiliation, business objectives, strategies, and risks.
- Analyze business processes (e.g., sales process from order to payment).
- Understand internal control procedures in place to mitigate risks.
- Use procedures such as inquiry, inspection (document examination), and observation to gather understanding.
- Analytical Procedures: Compare current year financial statements with previous years to identify significant changes or unusual trends; discuss these with client management.
- Materiality Determination: Define materiality thresholds (overall materiality, performance materiality, and clearly trivial amounts) to guide the extent of audit procedures and focus on significant errors.
- Risk Assessment and Risk Matrix: Identify and assess risks of material misstatement (fraud or error). Use risk matrix to prioritize audit focus.
- Test of Controls (Optional): Evaluate the effectiveness of internal controls to decide if substantive testing can be reduced.
- Audit Plan: Develop a detailed plan based on risks and materiality.
- Implementation Phase: Perform substantive procedures (tests of details and analytical procedures) to gather audit evidence.
- Completion and Review:
- Perform final analytical procedures to ensure all risks are addressed.
- Review legal matters and company’s going concern status.
- Ensure adequate disclosures in financial statements.
- Collect Management Representation Letter (confirmation that information provided is complete and accurate).
- Prepare and issue Audit Report with appropriate opinion.
- Documentation: Every step must be documented in working papers so that any external auditor can understand the procedures performed and conclusions reached without direct explanations.
Part 2: Key Auditing Concepts Every Auditor Must Know
- Materiality: Critical to understand and apply correctly; guides audit scope and evaluation of misstatements.
- Management Representations (Assertions):
- Existence/Occurrence: Recorded transactions/assets actually exist.
- Completeness: All transactions/assets that should be recorded are recorded.
- Accuracy: Amounts are correct.
- Cut-off: Transactions recorded in the correct accounting period.
- Classification: Transactions recorded in the proper accounts.
- Fraud vs. Error: Distinguish between intentional misstatements (fraud) and unintentional mistakes (errors). This distinction affects risk assessment and audit procedures.
- Test of Controls vs. Substantive Testing: Test of controls evaluates internal controls to possibly reduce substantive testing. Substantive testing gathers direct evidence about account balances and transactions.
- Analytical Procedures: Used both in planning and completion phases to identify risks and evaluate sufficiency of audit evidence.
- Audit Documentation: Maintain clear, detailed working papers for every audit step, including client acceptance, understanding procedures, risk assessment, and testing.
- Matching and Reconciliation: Always reconcile ledger accounts and trial balances before substantive testing to ensure completeness and accuracy of data.
Part 3: Practical Audit Procedures for Common Accounts
- Cash and Bank Balances:
- Confirm existence via bank confirmations (sent directly by bank to auditor).
- Reconcile bank statements with company records and investigate reconciling items.
- Verify currency conversions and foreign currency balances at correct exchange rates.
- For cash on hand, perform physical cash counts and verify safes.
- Fixed Assets:
- Review fixed asset schedules including additions, disposals, and accumulated depreciation.
- Test depreciation calculations and impairment assessments.
Category
Business and Finance
