Four Phases
(1) Planning — understand the client, assess risk, set materiality. (2) Internal Control Testing — evaluate design and operating effectiveness of controls. (3) Substantive Testing — directly test account balances and transactions. (4) Completing & Reporting — form the audit opinion, issue the report.
Audit Evidence
Auditors gather evidence through inspection, observation, inquiry, external confirmation, recalculation, reperformance, and analytical procedures. Evidence must be both sufficient (quantity) and appropriate (quality — relevant and reliable).
Materiality
Materiality is the threshold above which a misstatement could influence user decisions. Auditors set materiality during planning. It drives the nature, timing, and extent of audit procedures.