Audit Process Steps
Hello, and welcome to the Bisk CPA review course, and our coverage of the auditing and attestation (AUD) section of the CPA exam. My name is Bob Monette, and I'll be your instructor for these classes. And in this class, we're going to be talking about a very heavily tested part of the auditing exam, and that is reporting issues. Before we get into reporting issues I just want to say a word about the course, and the audit the exam itself. I think you know that the auditing exam itself is a four-hour monster. It's a tough exam. And I think that we should start with what I think is the hardest part of the exam, why not. Let's get right to it. You don't the hardest part of the exam is. Make sure you don't fall behind. That's the hardest part. That's the hardest part of the whole thing.
I think when you look back on your studying for the CPA exam. I think you'll agree with me. That's the hardest thing. Make sure you don't fall behind. What I'm getting at is, it's important, it's essential that you set up a regular study schedule. When I was studying for the exam. I was auditing during the day, and what I did was lunch hours, all the time I studied for the exam. I brown bag to work. And when it got to be lunch hour, I find an empty office. Closed myself off, and I did an hour of questions every day, very powerful doesn't sound it. But that's in my mind, a relatively painless way of putting in about five hours a week, and then a few hours maybe on Saturday, make sure you're all caught up. And if you're all caught up, you reward yourself by taking Sunday off. I really believe that because you need a break, you have to get away from it. So that's the sort of the deal you make with yourself. If you're all caught up as of Saturday, you're allowed to take Sunday off. If you're not caught up you have to actually study on Sunday to let that be an incentive to you to get caught up by Saturday, so you can get that day off. So to me that's, that's our game plan. You have to watch all these classes, but you have to get the problems done on the software and the way that you're going to get the problems done in the software, an hour a day. Try lunch hours. It doesn't have to be lunch hours. I've had students set their alarm clock, an hour early in the morning. Get up an hour early do an hour of problems, and then have a normal day. That's great. I know I couldn't do that. I throw the alarm clock across the room, I just know I would you got to be honest with yourself. What are you really going to do? But, choose an hour. Try to do an hour a day and you'll find that the cumulative effect from that effort, really starts to pay off, you'll really get this work done. And you have to get this work done. Now as I said, in this class. We're going to be talking about reporting issues always very heavily tested.
Part of the auditing and attestation exam. But I want to start with the basic steps in the audit process just to warm us up. Get us in the mood. Let's go over the basic steps in the audit process. There are six essential steps in the audit process step one, we have to establish an understanding with our client. That's step one, you must establish an understanding with the client, about the objectives of the engagement, any limitations on the engagement, the services that are going to be performed space requirements staffing requirements audit fees, always very important what are the fees and layout clearly the auditor's responsibility, the clients responsibility. And always remember that we are required. We are required under generally accepted auditing standards. we are required to document. Our understanding with the client in what is called the engagement letter. Then step two and step two, we're into the planning phase, and in the planning phase, we have to obtain an understanding of the entity. The client, and its environment, including internal control in the planning phase we use risk assessment procedures to obtain an understanding of the client, its environment. Internal Control. And of course, the risk assessment procedures that we perform depend on the size of the client the size of the entity, its complexity, our previous experience with the entity where they are every year. And of course, in the planning phase, we discussed with the audit team. How susceptible the financial statements are to material misstatements how susceptible financial statements are to errors and fraud. Then step three and step three, we evaluate the risk of material misstatement related to specific assertions cash investments, liabilities. Now we're going to in Step three, evaluate the risk of material misstatement in relation to a particular assertion. And we evaluate the probability of material misstatement related to particular assertions always considering materiality. In Step four, we design and perform our audit procedures that's step four, we design and we perform our audit procedures. Remember, we're going to have tests of controls compliance testing. We're going to have substantive tests of details, But in step four we designed to perform our audit procedures to address the risk of material misstatement in particular assertion. In Step Five, we evaluate all the audit evidence that we obtained in Step five, we simply evaluate all the audit evidence we've obtained. And in Step six. We form an opinion and issue our otter report, that's the sixth and final step in the audit process, where we form our opinion, any issue the audit report.