1.09 planning procedures Flashcards
What causes the nature and extent in timing of planning to vary when planning an engagement
Size and complexity of the entity
Auditors experience with the entity
Knowledge of the entities business and industry
Knowledge of the entity and it’s environment including internal control
What are the preliminary engagement activities that are performed at the beginning of an audit engagement
Procedures regarding acceptance and continuance
Evaluation of compliance with relevant and ethical requirements
Establishing an understanding with the client documented in the form of an engagement letter
What are the preliminary activities created by the auditor in developing an overall strategy
Identify characteristics that affect the scope of the audit
Determine reporting objectives to play in the nature and timing
Consider the preliminary activities and relevant knowledge gained from other engagements
nature timing and extent of resources needed to perform the engagement
What Is the purpose of an audit plan/program
Ensures auditor applies necessary procedures to verify the financial statement assertions for
Account balances
Classes of transactions
Presentation and disclosure
Provide support for the auditors opinion
What does the audit program/plan include a description of
Nature and extent of risk assessment procedures
Nature timing and extent of further audit procedures in response to assess risks
Other procedures that are planned in order to be in compliance with GAAS
How are audit programs designed using information from prior engagements
Consider which procedures are required by GAAS
Identify areas that represent more or less risk than in prior.
Make certain that programs are dissimilar enough to avoid being predictable
What does RMM stand for
Risk of material miss statement
What is the preliminary assessment of our RMM based on
Prior experience with the client for the audits of the predecessors
When does the final assessment of RMM take place
With the auditor gains an understanding of the client in its environment including internal control structure
What should be done if the. Preliminary assessment of RMM is it different from the final assessment of RMM
The audit program will have to be modified to increase or decrease the amount of substantive testing
During risk assessment procedures what does higher reliance on control internal controls mean
Reliance is up substantiative procedures go down
Involves performing test of controls
If controls are effective there is a reduction in nature timing extent of further audit procedures
During risk assessment procedures what does it mean when an auditor puts a lower reliance on internal controls
Reliance goes down substantive testing goes up
Test of controls is not performed
audit procedures are increased
How does the auditor prepare a time budget for the engagement
Estimating the amount of time the steps in an audit program is expected to require
What is an audit program/audit plan
Step-by-step list of audit procedures Required for every GAAS audit
How is an audit program/plan designed
Procedures achieve specific objectives which relate to managements assertions
It supports the auditors conclusion
Describes the nature timing and extent of
Risk assessment procedures
Further audit procedures material class of transactions account balances and disclosures
Other procedures to be performed to comply with GAas
Considerations in the development of the audit program
Materiality
Risk of material miss statement
Business and industry considerations
Common benchmarks of materiality are
Categories of income Total revenue Gross profit The total expenses Total equity Assets
What Factors influence the benchmark used when calculating materiality
The make up of the elements of the financial statements
Items on the FS that are particular interest to the users
Nature of the entity including maturity industry and economic environment
Entities ownership and organizational structure
Volatility of the benchmark and how the entity is financed
When the materiality level is different for various financial statements what dollar amount is selected
The smallest aggregate dollar amount
Materiality is based on
The auditors judgment
Materiality judgments involve both
Quantitative and qualitative considerations
There is a. Relationship between audit risk and materiality consideration
Inverse relationship
When risk is low materiality can be set at a higher level and vice versa
What should happen when a Materiality adjustment is proposed
The statements that were previously considered immaterial should be reevaluated
What is the auditor required to document regarding materiality
Materiality for the financial statements as a whole
Materiality for specific classes of transactions account balances or disclosures
Performance materiality
And revisions to any of the materiality measurements occurring during the engagement
What is risk of material miss statement RMM
The likelihood that the financial statements are materially misstated
What are the RMM risks
Control risk in inherent risk
Define iInherent risk
Risk due to the nature of an element of the financial statements
Example is cash
Define control risk
Risk that a material mistake will not be prevented or detected and due to lack of effective internal controls
What levels is RMM considered
Financial statement level
Account balance level
Class of transaction level
Disclosure level
What is detection risk
The risk that a material miss statement will not be detected by the auditor
What is detection risk used for
To determine the amount and types of substantive of testing performed
Goal is to reduce detection risk to an acceptable level
The higher the RMM
The lower the auditor will wish to reduce detection risk
Shpuld the audit program include a list of substantive tests that are planned to be performed later in the engagement
Yes
What is the preliminary assessment of RMM usually based on
Prior experience with the client Or audits of predecessors
What are planning considerations for an audit
Entities accounting policies and procedures
Materiality levels
Audit risk RMM
Entities business and industry matters
Method used to process accounting information
Financial statement items likely to require adjustments
Conditions that may require extension or modification of audit tests
Picture of the court is expected to be issued
Steps in planning an audit
BRAINSTOPS
Basic discussions with the client
Review of audit documentation
Ask about recent developments
Interim financial statements analyzed
Non audit personnel who have performed services
Staffing for the audit
Timing of the various audit procedures
Outside assistance including specialist
Pronouncements reflecting changes
Scheduling with the client
What does audit supervision include
Instructing assistants
Reviewing the work performed
Dealing with differences of opinion
What should be done if there is a difference of opinion among firm personnel
Dissenting party should document the differences and asked to be disassociated from the matters resolution
