- The nature of the client and the industry in which it operates
- The scope of the engagement
- The adequacy of the client's system of controls
- The level of cooperation received from the client
The approach chosen should be both effective and efficient, based on the preceding factors. The following general audit approaches are most commonly used, depending on the circumstances:
- When the financial reporting system is weak. The emphasis is on vouching significant transactions. There is little or no attempt to verify the robustness of the client's system of controls. This approach requires significant labor to test a sufficient number of transactions.
- When the internal control system is strong. The emphasis is on testing and validating the client's system of internal controls. If the controls are proven to be strong, then substantive testing can be significantly reduced. This is a more efficient audit approach.
- When the focus is on client risk. The auditor spends time reviewing where there is risk in a client's systems, and then designs an audit approach that focuses primarily on high-risk areas. Conversely, low-risk areas receive little auditor attention.
- When the focus is on the balance sheet. The audit focus is on testing the balances in the accounts comprising the balance sheet. By proving the balance sheet, the assumption is that all other transactions will flush out through the income statement, which will therefore require little testing.