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Lecture 5 - Audit planning

Lecture 5 - Audit planning
Course

Audit and Control System (ACS1)

8 Documents
Students shared 8 documents in this course
Academic year: 2022/2023
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Asia Pacific University of Technology and Innovation

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Main Reasons to Plan an Engagement

 To enable auditor to obtain sufficient appropriate evidence for the circumstances

 To help keep audit costs reasonable

 To avoid misunderstandings with the client

Goals of Planning

  • Obtain (or update) an understanding of important events that have affected the client and its operations

  • Identify areas of the engagement that may represent special risks to the public accounting firm.

  • Ensure that the engagement can be completed in a timely fashion

Benefits of Planning

 Helping the auditor to devote 奉献 appropriate attention to important areas of the audit

 Helping the auditor identify and resolve potential problems on a timely basis

 Helping the auditor properly organize and manage the audit engagement so that it is performed in an effective and efficient manner

 Assisting in the selection of engagement team members with appropriate levels of capabilities and competence to respond to anticipated risks, and the proper assignment of work to them

 Assisting, where applicable, in coordination of work done by auditors of components and experts  Facilitating the direction and supervision of engagement team members and the review of their work

 Increase effectiveness and efficiency in audit work

 Enable the auditor to obtain relevant and reliable evidences

 Helps to minimize audit costs by eliminating unproductive works and focusing on high risk areas

 Potential problems can be detected early and avoided

 Audit procedures can be performed systematically

 Avoid misunderstanding with the clients

Plan and Design Audit Approach

Step 1:

 To decide whether to accept new clients or continue service the existing one

 Client who lack of integrity or argue constantly about the proper conduct of the audit and fees can cause more problems than they are worth  Discontinue association when:  Conflicts over appropriate scope of audit  Type of opinion issued  Unpaid fees  Other matters  Even none of the above happens, auditor may decide not to continue due to excessive risk  Identify why the client wants or needs an audit

 Obtain understanding with the client about the terms of the engagement

 Engagement Letter

  • Agreement between auditor and client for the conduct of audit

  • Formal letter that formalize the contract between auditor and client – outlines responsibilities of both parties (audit period, number of auditors)

  • Recipient – Board of Directors/management

  • Purpose of engagement letter

Sources available for auditor to obtain info about client: - Experience with the client or its industry - Tour to client’s premises - Inquiries of client’s personnel - Inquiries from former auditor - Discussion with knowledgeable people within the entity e. directors - Discussion with knowledgeable people outside the entity e. industry economist/expert, customers, suppliers - Discussion with internal audit personnel and review of internal audit files/report - Memorandum & Articles of Association - Minutes of meetings

Step 4:

 Auditors perform preliminary analytical procedures to better understand the client’s business and to assess client business risk.

 Example of preliminary analytical procedure is to compare client ratios to industry or competitor benchmarks.

 This can reveal unusual changes in ratios compared to prior years, or industry averages, and help the auditor identify areas with increased risk of misstatements that require further attention during the audit

 Analytical procedures use comparisons and relationships to assess whether account balances or other data appear reasonable relative to the auditor’s expectation.  It can be performed at any of three times during an engagement

 In the planning stage : comparison of prior year and current year account balances using unaudited financial statements

 During the testing stage : as a substantive test in support of account balances. (execution)

 During the completion stage : serve as a final review for material misstatement or financial problem. (finalization)

 Five types of analytical procedures (Comparison of client data with..)

 Industry data

 Similar prior period data  Client determined expected results

 Auditor determined expected results

 Expected results using nonfinancial data

Step 6:

 System of internal control consists of policies and procedures designed to provide management with reasonable assurance that the company achieves its objectives and goals.

 Assessment of risk associated with financial instruments  Current level of collection (loans and receivable)

 Employee absenteeism

 Decreased productivity

 Information processing errors

 Increased delays in important processes

Step 7:

Auditors use several sources to gather information about fraud risks, including:

 Information obtained from communications among audit team members about their knowledge of the company and its industry

 Responses to auditor inquiries of management about their views of the risks of fraud and about existing programs and controls to address specific identified fraud risks.

 Specific risk factors (pressure/ opportunity/ rationalization) for fraudulent financial reporting and misappropriations of assets.

Step 8:

  • Audit program sets out the nature, timing and extent of audit procedures required to implement the audit strategy.

  • Purpose

  • Guiding audit staff

  • Evidence for proper planning and recording

  • Provide basis for conducting and supervising audit work

  • Future reference

  • Content

  • Objectives

  • Procedures of audit – including sampling, and timing in performing procedures

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Lecture 5 - Audit planning

Course: Audit and Control System (ACS1)

8 Documents
Students shared 8 documents in this course

University: Asia Pacific University of Technology and Innovation

Was this document helpful?
Main Reasons to Plan an Engagement
To enable auditor to obtain sufficient appropriate evidence for the circumstances
To help keep audit costs reasonable
To avoid misunderstandings with the client
Goals of Planning
• Obtain (or update) an understanding of important events that have affected the client
and its operations
• Identify areas of the engagement that may represent special risks to the public
accounting firm.
• Ensure that the engagement can be completed in a timely fashion
Benefits of Planning
Helping the auditor to devote 奉献 appropriate attention to important areas of the
audit
Helping the auditor identify and resolve potential problems on a timely basis
Helping the auditor properly organize and manage the audit engagement so that it is
performed in an effective and efficient manner
Assisting in the selection of engagement team members with appropriate levels of
capabilities and competence to respond to anticipated risks, and the proper assignment
of work to them
Assisting, where applicable, in coordination of work done by auditors of components
and experts
Facilitating the direction and supervision of engagement team members and the
review of their work
Increase effectiveness and efficiency in audit work
Enable the auditor to obtain relevant and reliable evidences
Helps to minimize audit costs by eliminating unproductive works and focusing on
high risk areas
Potential problems can be detected early and avoided
Audit procedures can be performed systematically
Avoid misunderstanding with the clients

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