Audit Methodology in a Nutshell

 Generally, an Audit Methodology will have the following three phases:

1. Planning Phase 

Here is the auditor:

• Develops the understanding of the entity, its environment and the overall engagement
• Performs a detailed risk assessment by considering risk factors
• Develops the overall strategy and plan for the assignment

2. Execution (also called evidence gathering or fieldwork) Phase 

Here is the auditor:

• Tests the overall effectiveness of the internal control framework relevant to financial reporting
• Performs test of details and analytical procedures to gather evidence regarding the substance of the transactions
• Document the work performed

3. Reporting Phase 

Here is the auditor: 

• Develops the draft report of analytical procedures (which is reviewed by the proper authority)
• Communicates relevant findings with those charged with governance
• Prepares management or board letter detailing the control weaknesses identified during the assignment
• Shares the final report with those charged with the governance

The overall audit methodology can be summarised in the following figure:

Read More: Fraud in Audit & Check out our track on The Importance of Audit Planning