#2 Planning Activities 1 - Pre Engagement, Planning and Supervision

Question 1

What is meant by the term “preconditions for an audit.”

Answer 1

The use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of management to the premise on which an audit is conducted.

Question 2

What matters should be covered in the successor auditor’s inquiry of the predecessor auditor.

Answer 2

1. Facts related to management’s integrity.
2. Significant accounting or Auditing disagreements.
3. Any communications with the audit committee ( or others charged with governance) about fraud, illegal acts and significant deficiencies in internal control.
4. Predecessors understanding of the reasons for the client ts change in auditors.

Question 3

What matters are typically addressed in an Engagement Letter?

Answer 3

1. Objective and Scope of the Audit.
2. The Auditors responsibilities.
3. Management’s responsibilities
4. A statement about the inherent limitations of an audit.
5. A statement identifying the applicable financial framework
6. Reference to the expected content of any reports to be issued
7. Other matters, as warranted(e.g. fees, etc.)

Question 4

What is meant by the term “initial audit”

Answer 4

The prior year financial statements have been audited by a predecessor auditor.

Question 5

Identify factors relevant to establishing an overall audit strategy.

Answer 5

1. Identify characteristics of the Engagement affecting its scope
2. Identify the Reporting objectives of the Engagement and required communication s
3. Consider the factors relevant to utilizing the audit team
4. Consider the results of preliminary engagement planning activities
5. Determine the nature, timing and extent of necessary resources for the engagement

Question 6

Identify 3 planning related issues that should be included in the auditors documentation.

Answer 6

1. The overall audit strategy
2. The audit plan
3. Any significant changes made to the audit plan during the engagement, along with the reasons for any such changes.

Question 7

What is the difference between an overall audit strategy and an audit plan

Answer 7

An audit strategy deals with higher level issues, such as allocating audit resources, whereas an audit plan is more detailed and deals more specifically with the nature, timing and extent of audit procedures to be performed.

Question 8

List several circumstances that impact the extent of planning activities

Answer 8

Size and complexity of the entity
Auditor’s experience with that entity
Auditor’s understanding of the entity and its environment, including its internal control.

Question 9

What is the auditor’s basic audit planning responsibility

Answer 9

The auditor should plan the audit (and design the required written audit program or plan) to be responsive to the auditors assessment of the risk of material misstatement

Question 10

List the Auditing procedures that should occur during the planning phase of an audit

Answer 10

1. Review client records
2. Inquire of client personnel
3. Coordinate client assistance
4. Determine if specialists are needed
5. Coordinate staffing requirements

Question 11

Identify some activities associated with pre-engagement activities

Answer 11

1. Perform appropriate procedures to address the quality control issues associated with the acceptance/continuance of the audit Engagement
2. Evaluate the audit teams compliance with relevant ethical requirements
3. Establish an understanding in writing of the terms of the engagement