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The stages of an audit

Auditing is a vital part of accounting. Traditionally, audits were mainly associated with gaining information about financial systems and the financial records of a company or a business. In accounting, Audits are performed: y To certain the validity and reliability of information; y To provide an assessment of a systems`s internal control. A set of financial statement are considered to be true and fair when they are free of material errors from both the quantitative and qualitative points of view. In the planning phase, the auditor determinates the materiality level, makes a preliminary estimate of errors in financial statements and calculates a size known as "precision" . These indicators help the auditor to statistically calculate sample sizes which will be selected for conducting the audit. During this stage, the auditor separates financial statements in "category of economic operations" and evaluates for each of theese The inherent risk and Control risk. The auditor should understand the relevant industry, regulatory, and other external factors including the applicable financial reporting framework, the nature of the entity, the entitys selection and application of accounting policies, the entitys objectives and strategies, and the related business risks that may result in material misstatement of the financial statements,the measurement and review of the entitys financial performance. Auditors utilize the following types of audit procedures to collect audit evidence: y inspection y observation y inquiry y confirmation y recalculation y re-performance

analytical procedures

They document the findings and conclusions from the audit procedures performed so as to provide a sufficient and appropriate record of the basis for the auditors report. When performing analytical procedures, the auditors examine both financial data and nonfinancial data, such as the number of employees. Before starting their analytical procedures, auditors estimate the expected value (of the ratio/ trend/ account balance/ transaction, etc.) before calculating the actual value so as to avoid the actual value being biased for the auditors estimate of the expected value. The expected results are estimated based on preliminary discussions with the clients. After having performed their analytical procedures, the auditors then compare the actual results with those expected and look for reasons for any significant variations. Unexplained variations may indicate a misstatement in the figures in that area, which would lead the auditors to plan their audit work to devote more time and resources to those areas. When the application of analytical procedures does not identify any unusual or unexpected differences, the results provide evidence in support of managements assertions. The auditor's report is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit or evaluation performed on a legal entity or subdivision thereof (called an auditee). The report is subsequently provided to a user as an assurance service in order for the user to make decisions based on the results of the audit. An auditors report is considered an essential tool when reporting financial information to users, particularly in business. Since many third-party users prefer, or even require financial information to be certified by an independent external auditor, many auditees rely on auditor reports to certify their information in order to attract investors, obtain loans, and improve public appearance. Some have even stated that financial information without an auditors report is essentially worthless for investing purposes. It is important to note that auditor's reports on financial statements are neither evaluations nor any other similar determination used to evaluate entities in order to make a decision. The report is only an opinion on whether the information presented is correct and free from material misstatements, whereas all other determinations are left for the user to decide.

Gurica Elena, AEI, anul II