Audit risk

Question 1

Importance of Audit Planning

Answer 1

• required as per standard
• important area of audit
• potential problems
• effective and efficient audit
• selection of engagement team members and assignment of work
• direction, supervision and review
• allocation of time
• coordination of work

Question 2

Tasks that will be completed in audit planning

Answer 2

• Risk assessment generally - business but mainly audit risk
• assessment of control environment- can controls be relied on?
• the decision to test controls
• scope of substantive tests
• procedures to comply with ISAs
• set materially- decide

Question 3

Audit risks examples & descriptions

Answer 3

• FY Audit - accuracy of PY figures
• FY Audit- staff not familiar with audit meaning more complex and time consuming- risk no time available
• Loan- risk profit drops or interest charges raise therefore don’t meet requirements. Recalling may mean struggle to continue
• TRs- risk of overstatement from increase in bad debt due to growth in sales without credit checks
• New accounting system- have all transactions been moved correctly, are staff trained etc

Question 4

Procedure to address - Accuracy of PY figures

Answer 4

Will need to verify the PY figure as these are included in the FS

Question 5

Procedure to address - time consuming- risk no time available from staff

Answer 5

Allow extra time as documents needed to test/ verify may not be available and alternative testing required

Question 6

Procedure to address - Loan

Answer 6

Review calculations of the interest cover to date and review forecasted calculations to ensure it is being reviewed and no issues have been highlighted

Question 7

Procedure to address- New Accounting system

Answer 7

• Engage with IT experts to enquire of system transfer
• Enquire about training
• Check opening balances