SU 04 Audit Planning Flashcards
(47 cards)
What factors should be considered in determining if a client should be accepted/ retained
- integrity of management
- firm competence to perform audit services
- potential independence issues
- existence of special circumstances and usual risks
What factors rated in the client evaluation form
- job risk/ complexity
- job recovery/ profitability (if hours worked will be billed for)
- client’s position as a referral source/ ties to other clients
- additional potential services to offer
- timeliness of payment
- client satisfaction
What steps happen before audit planning even begins
- determining whether or not to take the client
- communication with predecessor auditor
- communication with client’s legal counsel
- appointment by client’s audit committee
- production of engagement letter
What components are required for the engagement letter
- objective and scope of the audit
- responsible of the auditor and client management
- inherent limitations of audit and internal controls
- financial reporting framework to be referenced
- expected form and content of audit reports
Why is an engagement letter a contract that must be in writing
usually audits are high dollar value
makes the four corners rule pertinent
what is the four corners rule
everything in the contract is as written down, nothing implied
What are some main considerations for audit planning
- need for increased work if issues exist
- the appropriate nature, extent, and timing of procedures
- any significant risks to be considered
What is likely to create a significant risk
- potential for fraud
- recent & significant business developments
- complex transactions
- related party transactions
- highly subjective or non-routine transactions
Potential audit plan responses to risks
- tests of controls
- substantive procedures
what are audit tests of controls
tests that assess the controls over processes
- weak control environment requires more substantive procedures. strong control environment reduces RMM
What are audit substantive procedures
audit procedures that produce appropriate evidence (that could potentially be used in court)
How to determine which audit approach to use
Combined approach (with tests of controls and substantive procedures) is now required. cannot do just one or the other
What are the types of tests of controls
- inquiry
- inspection
- observation
-re-performance
Can inquiry ever be used on it’s own
no
What is one of the most common problems with internal controls
Management override of controls
what are the two types of substantive procedures
- tests of details (usually using sampling)
- analytical procedures (compare expected to actual)
What is vouching
Starting with the financial statements and tracing transactions backwards to records
What is tracing
starting with transaction records and tracing them forward to statements
What is the purpose of the preliminary risk assessment
Gaining an understanding of the client. includes:
- accounting and business practices
- industry and business environment
- compliance with laws and regulations
What aspects of the audit procedure does the preliminary risk assess affect
nature, timing, and extent of audit procedures
Requirements for the audit planning meeting
- required to be done pre-audit
- must have at least audit partner and manager - ideally whole team
- must be documented & notes included in audit file
- Concerns that MUST be addressed:
- Internal audit
- related parties
- fair value
- specialists
- estimates
- omitted procedures
Internal Audit audit planning considerations
Can provide evidence regarding internal controls
must assess competence and objectivity
NEVER shares responsibility with auditor
What is an auditor’s specialist
individual or organization possessing expertise in a field other than accounting or auditing. Work is used to assist the auditor in obtaining sufficient appropriate evidence
may be an internal or external specialists to an auditor’s firm
What is a management’s specialist
individual or organization possessing expertise in a field other than accounting or auditing. Work is used by the entity to assist the entity in preparing financial statements
