3. planning the assignment Flashcards
audit strategy
general strategy for the audit - big picture
scope timing direction
audit plan
detailed strategy
audit procedures
what does the overall audit strategy include
big picture
LETTERS
MR BICEP
MR BICEP
what does the overall audit strategy include
big picture
M = materiality and risks
R = resources
B = business understanding
I
C - internal controls
E = environment
P = people
what is the point of understanding the entity and its environment
AEIO = planning audit stage
analytical procedures
enquiry
inspections
observations
professional scepticism
questioning mind
what are analytical procedures
look for relationships between sets of data both financial and non-financial
- comparing
* prior periods, budgets, ratio analysis, industry info
what is materiality
material = if its omission or mistatement could influence economic decisions of users taken on the basis of the FS
what are the material levels for
R
A
P
revenue = 0.5 - 1
assets = 1-2
profit before tax = 5-10
what is the point of materiality levels
thresholds that we will look into if it is bigger than
- high risk = want lower materiality
what is performance materiality
cutting the materiality for the FS for specific balances
what is audit risk
risk that they express the wrong audit opinion - true and fair
what are the 3 different risks of misstatement in FS
LETTERS
DIC
DIC
what are the 3 different risks of misstatement in FS
Inherent risk = nature of business
Control risk = mistatement is not prevented, detected or corrected - internal controls (clients fault)
Detection risk = auditor misses something
what are the 2 components that make up detection risk
sampling risk
non sampling risk
what are the 2 types of fraud causing material mistatement
- fraudulent financial reporting = lies/misses things out in FS
- misappropriation of assets = missing assets/theft
who is responsible for detecting fraud out of management or the auditor
management - internal controls
auditor - not responsible - only responsible for giving opinion
