Chapter 7 Flashcards
(18 cards)
Objectives of audit planning
to ensure appropriate attention is devoted to important areas of the audit
to ensure potential problems are identified and resolved on a timely basis
ensured audit work is organised and completed expeditiously
coordinate work done by experts and other auditors
facilitate the direction, supervision and review of audit work performed
enable appropriate audit staff to be selected and for work to be properly assigned to them
Audit strategy
the strategy sets the scope, timing and direction of the audit and guides the development of the more detailed audit plan
Examples of items to include in the overall audit strategy
number of locations to be visited
communication between the audit team and the client
industry specific financial reporting requirements
audit client’s timetable for reporting to its shareholders/members
Audit plan
converts the audit strategy into a more detailed plan and includes the nature, timing and extent of audit procedures to by performed by the engagement team members in order to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level
Items that could be included in the audit plan:
timetable of planned audit work
allocation of work to audit team members
audit procedures for each major account area
materiality for the FS as a whole and performance materiality
When are interim audits carried out?
during the period of review
When does the final audit take place?
after the year end
Purpose of the interim audit
to carry out procedures that would be difficult to perform at the year end because of time constraints. audit work performed focuses on risk assessment and on documenting test of controls. some substantive procedures can also be carried out but will be limited because SOFP figures will not be the ones reported on
Purpose of the final audit
to allow the auditor to focus on the audit of the FS and issue a report which contains the opinion expressed on the FS covering the entire year being audited
Audit documentation (work papers)
the record of audit procedures performed, relevant audit evidence obtained and conclusions the auditor reached.
Why is audit documentation necessary?
to provide evidence of the auditor’s basis for a conclusion about the achievement of the overall objective
to enable the audit team to be accountable for its work
to assist the management team to plan and perform the audit
to enable quality reviews and inspections to be performed
to retain a record of matters of continuing significance
to assist team members responsible for supervision to direct, supervise and review audit work
to provide evidence that the audit was planned and performed in accordance with ISA’s and other statutory requirements
Working papers may be divided into two types:
- Permanent audit files (contains information of continuing importance to the audit)
- Current audit files (containing information relevant to the current year’s audit)
Examples of information included in the permanent file
engagement letters
new and continuing client questionnaires
incorporation documents, memorandum and articles
previous year’s signed FS and reports to management
accounting systems, notes and internal control questionnaires
details of the history of the client’s business
Examples of information contained in the current files
review notes
financial statements
reports to those charged with governance
audit strategy and planning memo
risk assessment
written representations
time budgets and summaries
Procedures carried out during interim audits
record understanding of an entity’s system of internal control
inherent risk assessment and gaining an understanding of the entity
performing substantive testing of transactions/balances to gain evidence that the books and records are reliable
evaluating the design of internal controls
carrying out test of controls on the company’s internal controls to ensure they are operating as expected.
Procedures carried out in final audit
obtaining third party confirmations
agreeing the FS to accounting records
subsequent events review
analytical procedures relating to figures in the FS
substantive procedures
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
Matters to consider when establishing audit strategy: characteristics of the engagement
Financial reporting framework
expected audit coverage
use of service organisations
availability of client personnel and data
nature of business segments
availability of internal audit work
effect of IT on audit procedures
