Lesson: The Audit Process

Instructor: Nick Palazzolo

In this lesson, Nick Palazzolo, CPA, provides an overview of the entire audit process which consists of several distinct stages. He begins with engagement acceptance, which involves creating an engagement letter, determining independence, and coming to an agreement with the client. Next, he discusses assessing risk and planning the response, which involves determining materiality, developing a strategy, and understanding the entity and its environment. The following stage is performing procedures and obtaining evidence through substantive testing and control testing. Afterward, conclusions are formed by assessing management's representation letter, evaluating subsequent events, and ensuring effective quality control. The final stage in the audit process is reporting, which encompasses generating the report, ensuring conformity to GAAP and GAAS, and issuing the audit opinion. Throughout the entire process, maintaining solid quality control, effective communication, and proper documentation is emphasized.

Updated: June 22, 2023 Create an account

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Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Now let's talk through the overall audit process, which we'll see throughout. First, we start with engagement acceptance. Engagement acceptance, we have the engagement letter, we have a lesson on that. We're going to determine if we are independent. We are going to discuss the terms of the engagement and come to an agreement with the client and an understanding so that they know what we're going to do and there's nothing left on the table for possible confusion and conflicts later on. Then when we get to assessing risk and planning the response, this is going to be where we are here. We're going to plan materiality, which we'll build on later in another lesson. We are going to develop our strategy. We are going to assess risk by understanding the entity and its environment as well as its internal control. We're going to identify and assess that risk as well as respond to that risk. Next, we're going to perform procedures and obtain evidence. This is substantive testing, testing controls. This is where we do the actual audit testing. We obtain evidence. We're going to talk about that later on. And then we form conclusions. We are going to get ready to issue that opinion. We assess management's representation letter and what they say. The subsequent events, we're going to evaluate the results, and we're going to make sure that we have a solid engagement through effective quality control. Lastly, we're going to report. We're going to generate the report. We're going to make sure it looks and conforms to GAAP and GAAS. We are going to consider basically anything else that may be important for us. And we are going to issue that opinion. Overall, throughout the entire process, we want solid quality control. We want communication

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Engagement Planning, Understanding an Entity, & Understanding its Internal Control

Module: 2 Concepts, 36 Lessons

Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Overview

1:09

Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Objectives

4:41

Introduction to Management's Representation and Responsibility

2:56

Reliance on Management Representations