7 Audit planning and docs Flashcards
Audits are planned to:
• Help the auditor devote appropriate attention to important areas of the audit • Help the auditor identify and resolve potential problems on a timely basis • Help the auditor properly organise and manage the audit so it is performed in an effective manner • Assist in the selection of appropriate team members and assignment of work to them • Facilitate the direction, supervision and review of work • Assist in co-ordination of work done by auditors of components and experts
A structured approach to planning will include:
Step 1
Ensuring that ethical requirements are met, including independence
A structured approach to planning will include:
Step 2
Ensuring the terms of the engagement are understood
A structured approach to planning will include:
Step 3
Establishing the overall audit strategy that sets the scope, timing and direction of the audit and guides the development of the audit plan • Identify the characteristics of the engagement that define its scope. • Ascertain the reporting objectives to plan the timing of the audit and nature of communications required. • Consider significant factors in directing the team’s efforts. • Consider results of preliminary engagement activities. • Ascertain nature, timing and extent of resources necessary to perform the engagement.
A structured approach to planning will include:
Step 4
Developing an audit plan that includes the nature, timing and extent of planned risk assessment procedures and further audit procedures
What is an overall audit strategy?
The overall audit strategy sets the scope, timing and direction of the audit, and guides the development of the more detailed audit plan
THE OVERALL AUDIT STRATEGY: MATTERS TO CONSIDER :
Characteristics of the engagement
engagement
• Financial reporting framework • Industry-specific reporting requirements • Expected audit coverage • Nature of business segments • Availability of internal audit work • Use of service organisations • Effect of information technology on audit procedures • Availability of client personnel and data
THE OVERALL AUDIT STRATEGY: MATTERS TO CONSIDER : Reporting objectives, timing of the audit and nature of communications
• Entity’s timetable for reporting • Organisation of meetings with management and those charged with governance • Discussions with management and those charged with governance • Expected communications with third parties
THE OVERALL AUDIT STRATEGY: MATTERS TO CONSIDER : Significant factors, preliminary engagement activities, and knowledge gained on other engagements
• Determination of materiality • Areas identified with higher risk of material misstatement • Results of previous audits • Need to maintain professional scepticism • Evidence of management’s commitment to design, implementation and maintenance of sound internal control • Volume of transactions • Significant business developments • Significant industry developments • Significant changes in financial reporting framework • Other significant recent developments
THE OVERALL AUDIT STRATEGY: MATTERS TO CONSIDER: Nature, timing and extent of resources
• Selection of engagement team • Assignment of work to team members • Engagement budgeting
Examples of items to include in the overall audit strategy could be:
• Industry-specific financial reporting requirements • Number of locations to be visited • Audit client’s timetable for reporting to its members • Communication between the audit team and the client
What is an audit plan?
The audit plan converts the audit strategy into a more detailed plan and includes the nature, timing and extent of audit procedures to be performed by engagement team members in order to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
The audit plan shall include the following:
• A description of the nature, timing and extent of planned risk assessment procedures • A description of the nature, timing and extent of planned further audit procedures at the assertion level • Other planned audit procedures required to be carried out for the engagement to comply with ISAs
Examples of items included in the audit plan could be:
• Timetable of planned audit work • Allocation of work to audit team members • Audit procedures for each major account area (eg inventory, receivables, cash) • Materiality for the financial statements as a whole and performance materiality
Further application guidance was added to ISA 300 in 2015, to highlight the need for auditors to consider financial statement disclosures at the planning stage. Considering disclosures early in the audit helps auditors to identify:
• Changes in the entity’s environment, financial condition or activities • Changes in the applicable financial reporting framework • The need to involve an auditor’s expert (eg for disclosures related to pension) • The need to discuss matters with those charged with management (eg changes in the entity’s environment or issues regarding the quality of the disclosures, as covered under ISA 260).
Auditors usually carry out their audit work for a financial year in one or more sittings. These are called
interim audit(s) and the final audit.
Define Tests of controls
Tests of controls are designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level
Define Substantive procedures and what are the two types
Substantive procedures are designed to detect material misstatements at the assertion level. Substantive procedures comprise: • Tests of details (of classes of transactions, account balances, and disclosures); • Substantive analytical procedures
What is the purpose of the interim audit?
The purpose of the interim audit is to carry out procedures that would be difficult to perform at the year end because of time constraints. Work at this visit tends to focus on risk assessment and on documenting and testing internal controls. Some substantive procedures can also be carried out but these are limited because statement of financial position figures will not be the ones to be reported on
What is the purpose of the final audit?
The final audit will focus on the audit of the financial statements. It concludes with the auditor issuing a report which contains the opinion expressed on the financial statements covering the entire year being audited. The final audit opinion will take account of conclusions reached at both (or all) audit visits.
Interim audit procedures may include:
• Inherent risk assessment and gaining an understanding of the entity • Recording the entity’s system of internal control • Evaluating the design of internal controls • Carrying out tests of control on the company’s internal controls to ensure they are operating as expected • Performing substantive testing of transactions/balances to gain evidence that the books and records are a reliable basis for the preparation of financial statements • Identification of issues that may have an impact on work to take place at the final audit
Final audit procedures include:
Substantive procedure involving verification of statement of financial position balances and amounts in the statement of profit or loss
• Obtaining third-party confirmations • Analytical procedures relating to figures in the financial statements • Subsequent events review • Agreeing the financial statements to the accounting records • Examining adjustments made during the process of preparing the financial statements • Consideration of the going concern status of the entity • Performing tests to ensure that the conclusions formed at the interim audit are still valid • Obtaining written representations
Performing audit procedures before the period end can assist in identifying significant matters at an early stage of the audit and help resolve them with management’s assistance or develop an effective audit approach to address them. This reduces the time taken at the final audit to gain the remaining sufficient appropriate audit evidence needed. T/F
True
If the auditor obtains audit evidence about the operating effectiveness of controls at the interim audit, when it comes to the final audit, instead of having to gain evidence over controls covering the whole year the auditor can focus on:
• Obtaining audit evidence about significant changes to those controls subsequent to the interim period • Determining the additional audit evidence to be obtained for the remaining period