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An audit methodology is the series of tasks or activities an accounting firm goes through when reviewing a client’s financial information. Each methodology is typically different due to the differences in client operations. Developing an audit methodology has four steps: planning, fieldwork, reporting, and follow up. Each step has a few different tasks auditors must complete to fully develop a workable methodology. Much of the work comes after a company signs the engagement letter with a client.
Planning comes after the client first signs with an accounting firm. Auditors interview the company’s management team and develop an audit plan and timeline. The audit methodology also includes a preliminary scope. Auditors review previous audit reports, current information, and other information to determine how to complete fieldwork. Companies with historical financial problems may have the accounting firm drop the client due to increased audit risk.
Fieldwork is where auditors complete the majority of audit work. The audit methodology describes the sample size, testing methods, and internal controls auditors need to test. Risk analysis is also part of this process. Auditors create a basic assessment of what risks are prevalent in the client’s operations. Identifying risk during the early fieldwork stages allows auditors to discuss how to approach these areas and change the audit methodology to ensure a full audit on the client’s information.
The reporting phase of an audit is the beginning of the end for the entire process. The audit methodology typically outlines the draft matrix the auditors prepare for their client. The matrix includes a brief report on audit findings and the material effect the items have on financial information. The methodology typically requires a draft matrix that auditors discuss with the client prior to issuing a formal audit report. Auditors may change their opinions on certain findings if the client can prove the items are nonissues.
An audit follow-up is the final stage of an audit methodology. If a client receives a qualified or adverse audit opinion — indicating a problem with current financial information — a second audit is necessary to ensure these problems do not exist. The audit methodology typically calls for a remedial audit where auditors return to the client and test all areas that failed the initial audit. Auditors retest new information to ensure the client changed accounting practices to correct the previous errors. The remedial audit typically follow. the same — albeit less intense — methodology.
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