Audit of an organization requires a significant degree of planning and protocols in order to ensure that the overall efficacy of the audit process is intact, and is able to meet the required evidence that can help the auditors to obtain reasonable assurance about the accuracy of the financial statements.
Therefore, the audit should be planned in order to ensure that the auditor is able to execute the audit process in a smooth manner. The preliminary audit is carried out as advanced preparation for the audit process, to streamline the audit when it actually takes place.
Therefore, it can be seen that preliminary audit can be defined as audit fieldwork that is performed by the auditors before the end of the period under examination.
The importance of a preliminary audit can be gauged from the fact that it helps the organization to reduce the volume of activities that would otherwise need to be prepared after the client has duly prepared his books.
Benefits of the Preliminary Audit
The main rationale that is put forth in order to justify preliminary audit vests on the grounds of ensuring that the company is able to reap the following benefits.
Firstly, in the case where a preliminary audit is carried out, it can be seen that the auditors are able to manage their workload in the sense that they can do the groundwork and the field before the audit process itself.
During the year of many companies, it gets harder because of the reason that there are numerous different clients during the year end.
Therefore, by conducting a preliminary audit, the overall workflow is managed as a result of dividing the work and prioritizing it accordingly.
Secondly, by conducting a preliminary audit, the company can keep the audit staff occupied during the period when the workload is relatively lesser, during the slack periods.
Additionally, conducting preliminary audit can also help auditors to issue their opinions in a relatively faster manner, because of the fact that most of the work has been carried out in advance for the company.
Tasks Completed during the Preliminary Audit
The tasks that are mainly completed during the preliminary audit is based on three core activities, which are as following:
Examination of Internal Controls: This is a fundamentally important part because it directly reflects the underlying integrity and capability of the company to be able to have a preventive scheme that ensures that there are no leakages from the system, including fraud and any incidence of material misstatement.
Therefore, the examination of internal controls ensures that the company is able to account for internal control, and how can it be controlled in order to prevent any existing circumstances.
Preliminary Analysis of Account Balances: This also constitutes to be an increasingly important part of the preliminary audit, because of the fact that the existing account balances should be properly managed, and accounted for in order to get the best results and returns.
Adjustment of Planning Subsequent Audit Work: Hence, based on the work that is carried out in the points mentioned above, the future outlay of the work is mentioned.
The overall scope is defined as a result of the analysis that is put forth by the aforementioned insights. These insights help to define the future course of action that is to be taken in this regard, in addition to the aspects that should be duly incorporated in order to extrapolate better results.
Therefore, it can be seen that preliminary audit, whilst might not be a necessity for most cases, turns to be increasingly helpful because of the reason that it directly impacts the final outcome of the audit process.
As a matter of fact, the initial risk assessment that is carried out during the initial stages of the audit plays a very important role in ensuring that all inherent risks have been defined well in advance, so that there are no chances of audit procedures not being duly implemented across the course of time, to say the least.
Hence, with preliminary audit, the overall risk threshold on the part of the auditor is marginally reduced, because of the reason that it helps to identify any loopholes before the official close of the final year, and any errors or misstatements can be pointed out well in advance.
In addition to the effective utilization of staff and resources, it also contributes positively towards the final opinion generation of the auditor, since the workload is effectively managed and spread across the course of the year.