How can you establish the outcome of previous audits and what is the impact of a previous outcome on the current audit?

 

The Answer has two Parts,Part A and Part B,part A discusses detailed explanation on how to establish the outcomes of a previous audit,Part B diccusses the impact of the previous outcome on the current audit

Step-by-step explanation

Audit planning

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Discussion

Part A

A financial audit refers to an objective evaluation based on financial reporting processes and financial reports' independence. Financial audits help investors, regulators, directors, and managers equipped with reasonable assurance about the accuracy and completeness of financial statements. However, forming opinions that financial statements are presented fairly in all their materials, the auditor should consider the relevant evidence of the audit. In an audit of financial statements, the auditor's establishment of the previous audits' results/outcomes should include the following measures. ( Eulerich et al., 2019) Firstly, Misstatements that had accumulated during the prior audit in the inclusion of its particulars and the uncorrected misstatements. The second process of establishing the outcomes of the previous audit involves evaluating the results of those analytical procedures that were performed in the overall review of the financial statements. Thirdly involves evaluation of the qualitative aspects of the accounting practices of the company. Another way the outcome may be established is to evaluate all those conditions identified in the audit process related to the general assessment of the material risk misstatements due to fraud. Results of the previous audit can also be identified through previous financial statements presentation inclusion of the disclosure. Lastly, the appropriateness of the audit evidence obtained can also establish an audit outcome.

Part B

Impact of the previous outcome on current audit

"Outcome impact" refers to that situation where outcome knowledge influences the auditor's judgment in outcome direction, which can either be positively or negatively. The failure to identify the misstatement material in financial statements may include outcome restatement in the current audit. This approach will make the audit firm lose clients, the auditor losing the job, and the investors bringing lawsuits against the firm; however, the skeptical auditors can reduce the firm risk by reducing the risk that material misstatement goes undetected. ( Zhang, 2018) The other impact is that the performing of unplanned procedures in the previous audit may bring about anger or frustrations to the clients responding to the current audit's inquires.