Auditing is a complex process, and it can get confusing. Having a plan can help you keep track of what needs to be done, and ensure that the work is being completed efficiently.
The preliminary planning phase includes the development of an audit strategy. This involves establishing the overall audit objectives, likely scope of the audit, and planned risk assessment procedures.
In this phase, you also start defining audit criteria, which is the benchmark against which you evaluate the financial statements. You will use these to compare the financial statements against a set of standards known as GAAP, or generally accepted accounting principles.
During this step, you select the sample items that you will use in the audit. You can use a direct sample selection, block sample selection, or phazard sampling.
You also need to decide whether or not you will sample with replacement, that is, replace each item in the sample with a new one. Statistical sampling requires probabilistic sample selection, which selects the sample in such a way that each population item has a probability of being selected in the audit.
You should reassess your risk assessment as circumstances change during the course of the audit. This includes changes due to a revised assessment of the risks of material misstatement or the discovery of a previously unidentified risk.
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