What Are The Auditing Requirements (Explained)

The audit process can be regarded as a highly subjective procedure that differs from one business to the next regarding the overall scope and audit objectives to be covered.

As a result, ensuring that the entire audit process is properly planned and conducted is very important. Auditors should make sure there are no unsolved issues and all audit concerns have been addressed when an audit is concluded.

What is an audit checklist?

To ensure that all audit requirements are met, the planning phase must involve the creation of an audit checklist that covers all applicable procedures and requirements.

The phrase audit checklist refers to a document prepared during the audit planning stage. The senior auditor, who is in charge of the entire audit, should create and manage this document.

This document is essentially a list of the procedures that must be performed during the audit.

Most auditing software programmes have a library of standard audit checklist templates that can be used for different types of audits.

The use of an audit checklist does not limit to just the auditors. Entities can also use it to evaluate their own business operations and prepare for a third-party audit if one is required in the future.

An audit checklist can quickly uncover areas of concern and allow management to take remedial action to resolve the issue when used correctly. A standard audit checklist should cover the three main audit segments, namely, finance, management and operations.

We will talk about how to prepare an audit checklist to ensure all audit requirements are fulfilled later. Now, let us look at the numerous advantages of having a proper audit checklist:

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A reference point for audit requirements

An audit checklist lists out all the audit procedures within the audit process that the auditors need to perform. It, therefore, serves an important role as a reference point before, during, and after the audit process as it will help the auditors to address all relevant audit requirements adequately.

Improves efficiency

The auditors can use the checklist to communicate with the audit client. Instead of having back and forth conversations to request documents relevant to the audit, they can hand the audit checklist to the client directly instead.

This can save the auditors a lot of time in terms of communication lead time and the client can arrange beforehand all the necessary items that the auditors require for the audit. As a result, the audit can be carried out more efficiently.

Ensure the quality of the audit

Externally, the checklist can be used to demonstrate that an audit was carried out and that every important item was examined. It also helps to ensure that the audit approach applied is consistent across all audits.

Furthermore, it can help support the audit firm’s audit process and assist the auditors in identifying areas that require more attention to deliver a good quality audit.

Help plan for future audits

It is undeniable that having an established checklist will be a valuable resource for planning future audits.

Instead of having to redesign the steps and determining if those steps meet all the audit requirement, auditors can simply rely on the audit checklist from the previous audits to plan its audit procedures for all future audits of the same client.

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Ensure quality management system

In this matter, if the entity is using the audit checklist for its own assessment, it is clear that an audit checklist can be quite useful in establishing the overall extent to which the entity’s management system corresponds to the criteria.

It can assist the entity in identifying any weaknesses in its business processes and allow it to develop a targeted approach that can assist it in prioritising corrective action to improve the processes.

For auditors, they can utilize the checklist templates to assess their client’s existing management system status during an audit.

How to set audit requirements?

Step 1

To help determine the necessary parts of an audit, first, write down the primary subject headings for the audit checklist. These headings should be “Finance,” “Management,” and “Operations” based on the three main audit segments we mentioned earlier.

These subject headings refer to the numerous areas of the business that should be scrutinised during an audit.

To create the checklist, use computer software, such as a spreadsheet application, or paper and pencil. Allow space under each subject title for subheadings relating to the subject.

Step 2

Place financial-related topics and functions under the “Finance” subject title. Include subjects such as accounting methods and the entity’s financial strategy.

This part is designed to cover the audit on finance-related topics. For instance, the type of accounting system in use, the accuracy of financial statements prepared, and the understanding of the preparers and reviewers of these statements.

Other subtopics to cover include the filing of tax returns, proper withholding tax calculation and credit policies.

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Step 3

Audit requirements related to the management subject should be placed under the “Management” subject title. These requirements include those related to the business strategy and employee management.

You can use subheadings like pricing policies, annual budget and sales strategy to aid in the drafting of planned procedures.

So when performing an audit, the auditor will know to check that a pricing policy is in place to address changes in the marketplace, the business operates within a realistic budget, and a sales plan exists. All these need to be met to fulfill the audit requirements.

For an audit on employee management, use subheadings, such as job descriptions, employee expectations, and discipline procedures. These subheadings will cover policies concerning employee feedback, reviews, and theft prevention.

Step 4

Lastly, under the “Operations” subject heading, list functions relating to business operations. This should encompass subjects such as marketing, promotions, and production.

For example, concerns such as client needs, rivals, and promotion plans will be handled under marketing and promotions. In contrast, you will include assessments of inventory control systems, supplier relationships, and training programs for production.

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