Text 7. Process of Audit (Процессаудита)

An audit is an objective analysis and examination of some aspect of a company’s operations to confirm the extent to which the organization is in compliance with expected standards. Audits can have different purposes. A financial audit looks at a company’s financial records to make sure they’re correct. A compliance audit is designed to ensure the company is complying with applicable regulations or laws. In most cases, an audit consists of several steps or phases that are designed to ensure the most accurate, objective and reliable results. The process for a specific audit will depend on what type of audit is being performed, as well as what set of standards govern the auditor’s work.

Notification

Audits begin with the issuance of some kind of notification to the company or organization being audited. The notification letter generally will specify the purpose of the audit, when it will be conducted and the date and time of an initial meeting the auditors would like to schedule with the company’s leaders.

The notification will also list what documents the auditor wants to examine. For a corporation, this can include articles of incorporation, the recorded minutes of any board meetings, an organizational chart, correspondence, sales records and more.

Planning Process

After the notification is sent, the auditor will take some time to plan the audit. This is done before meeting with the organizational leadership in order to craft the appropriate strategy for that meeting and the fieldwork that follows. Auditors also need to identify the key areas of inquiry and concern and the specific information they wish to examine in order to analyze those areas. This also gives the company time to gather the requested documents.

Initial Meeting

The planning stage usually leads to an initial meeting between the senior management of the company and the auditors. Administrative staff may also be present. The purpose of the meeting is to give the auditors an opportunity to explain the process, as well as to give the organization a chance to express any practical, strategic or scheduling concerns they may have.

Fieldwork

Fieldwork is the first active auditing stage. A more detailed schedule is usually drawn up so that the auditor’s presence isn’t too disruptive to business. Interviews with key employees may take place to investigate business procedures and practices. Auditors may also perform sample document checks, to make sure the company’s document creation and retention practices are sound.

The fieldwork may be conducted by a few auditors or a larger team, depending on the size and scope of the audit.

Communication

While the fieldwork is carried out by the auditing team on-site at the company’s premises, the team should be in regular contact with the corporate auditor in order to clarify procedures and ensure proper access to needed documents.

Draft Audit

When the auditing team completes the fieldwork and document review, the auditors prepare a draft audit report. This document details the purpose of the audit, the procedures the auditors used, the documents reviewed and the audit’s findings. It will also likely include a preliminary list of unresolved issues. The draft report is circulated among the team for review and suggested revisions.

Management Response

After the auditing team makes the last revisions to the audit report, the final document is given to management for its review and response. The audit document usually asks management to respond to each of the audit’s findings and conclusions by stating whether it agrees or disagrees with the problems cited, the plan to correct any observed problems or deficiencies and the expected date by which all issues will have been addressed.

Exit Meeting

Following the management response, which may be formally attached to the final audit report, a formal exit meeting may be scheduled with the company being audited to close any existing loose ends or answer questions, discuss the management response and address the scope of the audit.

Distribution of Audit Report

The finalized audit report is distributed to all necessary stakeholders, including inside and outside the area audited, if applicable.

Feedback

Finally, the audited company implements the changes recommended in the audit report, then the auditors review and test how well those changes solve the identified problems or issues. The feedback between the company and the auditors continues until all issues are resolved and the next audit cycle begins.

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Text 7. Process of Audit (Процессаудита)

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VOCABULARY FOR TEXT 7
interim['IntqrIm]	промежуточный, предварительный (сделанный до принятия окончательного решения, полной выплаты, учета всех данных и т. п. )
review[rI'vjH]	обзор, проверка, ревизия (бухгалтерская услуга, предоставляющая совету директоров или заинтересованным сторонам гарантию надежности финансовой информации без проведения дипломированным общественным бухгалтером аудиторской проверки в соответствии с общепринятыми правилами аудита)
salesrepresentative [seIlz " reprI'zentqtIv]	1) торговый представитель; 2) агент по продаже товаров; 3) комиссионер
tooverstate [tu 'Ouvq'steIt]	1) завышать (цены); 2) преувеличивать
toassess[tu q'ses]	1) определять; оценивать; 2) облагать (налогом)
inventory['InvqntrI]	опись, список, реестр (список всех активов с указанием стоимости каждого (напр. список всех активов физического лица, предъявляемый при подаче заявления на получение кредита; список всех предметов, находящихся в здании, и т. п. ))
hard[hRd]	1) твердый, крепкий; 2) тяжелый, трудный; 3) настойчивый, упорный
close[klOus]	1) близкий (о времени и месте); 2) закрытие бухгалтерских книг (в конце учетного периода)
rationale[" rxSq'nRl]	обоснование
revenue['revInjH]	доход (по основной [обычной] деятельности), выручка (любые поступления от продаж или из других источников)

A financial audit is usually done annually through 3 main steps.

1. Interim review.

This is the first approach to the company. It usually covers the first half of the financial year. For instance, if a company closes its accounts yearly on December 31, the interim review will cover January to June.

The purposeis

§ to understand the business of the company, the environment in which it operates (this includes aspects such as competition, legal requirements, economy, etc), what its main issues are to figure out what audit risks are from an audit point of view. Thismeans, auditorswillhave

§ to find what kind of mistake (on purpose or not) could be done in this company. For instance, if the income of sales representatives is directly linked to the sales they generate (it's of course never the case), they could try to overstate their figures, leading to an abnormally high income.

§ to assess the internal control procedures (checks on the firms internal processes, such as inventory ) actually in place. This is an important step as it will allow later to determine if one should carry out basic or advanced investigations. Indeed, if the internal control procedures seem to be reliable, this means there is no need to check accounts further.

2. Hard close.

This audit precedes the closing date. For a company closing on December 31, the Hard Close would typically occur using numbers as of November 30. Note: some hard closes are performed using the numbers as of the preceding quarter end (i. e. in the above example as of September 30). The purpose is to audit all movements year to date. This audit step is not on the audit during Final.

3. Final.

This is the latest step of the audit, usually some weeks after the closing. Thanks to the work already done during the Hard Close, only the remaining range between the date of the Hard Close and the closing has to be audited.

RATIONALE FOR AUDITING

Audit has some specific features throughout the world but has some main components. One of the main problems in audit is the conflict between the need to control a company and the business relationship. On the one hand, the audit company has to thoroughly check the books, but on the other hand, it has to keep its customer that is its source of revenue. In practical terms, this means that the audit company will try to protect itself by carrying out the minimum checks, but if it has a slight doubt, it won't go further if the client is a bit reluctant to give out information.

READ AND ANSWER THE FOLLOWING QUESTIONS
1.	what are the three main steps of financial audit?
2.	What is the purpose of the interim review?
3.	Describe the audit step called “hard close”.
4.	What is the latest step of the audit?
5.	What are the main problems in audit?