(i) The first stage in any audit should be to determine its scope and the auditors general approach and preferably to draw an audit programme.
(ii) The objective of the next stage of an audit is to determine the flow of documents and the extent of controls in existence within the clients systems.
Determining the mechanics of a system is frequently achieved by performing walk through tests.
(iii) The next stage is to prepare a comprehensive record (using ICQs and flow charts) of the clients systems to facilitate the evaluation of those systems.
(iv) Having confirmed the clients systems auditors should then evaluate the systems after which they will be able to recommend improvements to the systems as required.
(v) If the controls are assessed as being effective, it will be necessary to select and perform tests designed to establish compliance with the systems. It is necessary for the auditors to check that the controls are as effective in practice as they are on paper by carrying out tests of controls. The conclusion drawn from the results of a test of control may be either:-
(i) That the controls are effective in which case the auditors will only need to carry out restricted substantive procedures.
(ii) That the controls are ineffective in practice, although they had appeared strong in theory, in which case the auditors will need to carry out more extensive substantive tests.
(iii) If the controls are assessed as being ineffective, the auditors should move straight to a programme of full substantive procedures. This tests are designed for two purposes:
a) To support the figures in the financial statement
b) Where errors exist, to assess their effect in monetary terms