Final answer:
The scope of an audit is essential to guide the evaluation of records or transactions, setting the boundaries and aims of the audit process and determining the level of testing to be done.
Step-by-step explanation:
The scope of the audit defines parameters that will be used to evaluate the records or transactions being evaluated. The scope includes determining the extent of the audit activities, specifying the time period covered, and outlining the types and forms of records that will be examined. It is crucial for the auditor to establish a clear scope before proceeding to ensure the audit process is efficient and effective. This involves setting the objectives and limitations of the audit, as well as deciding on the level of testing and review to be applied to the financial statements.