How Does an Audit Engagement Work?
Discover the five main phases of an audit engagement and the difference between internal and external audits.
The audit engagement delivers substantial confidence regarding financial information integrity for managers, administrators, creditors, and investors. The CPA auditor certifies that financial statements contain no significant anomalies and offers recommendations for improvement.
Internal vs. external audit
Status: Internal auditors are company employees; external auditors are independent professionals.
Beneficiaries: Internal audits serve management; external audits serve stakeholders.
Objectives: Internal audits analyze operational processes. External audits certify financial statement reliability.
The five phases of an audit
1. Mission acceptance
Documentation through a letter detailing auditor responsibilities, management duties, and mandate limits.
2. Orientation and planning
General business knowledge acquisition and mission plan development specifying scope and timeline.
3. Internal control assessment
Identifying strengths and weaknesses, recommending corrective actions.
4. Analytical and corroborating procedures
Verifying account figures through physical observation, external confirmations, internal document examination, and analysis procedures.
5. Reports
Presenting audit reports specifying the opinion on financial information presentation, internal control risks and weaknesses, and recommendations.