7: Planning Flashcards
What are the three stages to the audit process?
- Plan audit
- Understand the systems and controls
- Confirm the operation of the system
Why is planning an audit important?
5 things
- Devote time to important areas
- Identify and resolve problems in a timely basis
- Organise so engagements is performed in a effective and efficient manner
- Facilitates supervision of team
- Assisting in coordination of experts and internal audit
What are the 10 sections of an audit strategy document?
- Understanding entities environment
- Understanding accounting systems and internal controls
- Risk
- Analytical procedures
- Materiality
- Consequent nature, and extent of audit procedures
- Timings
- Deadlines and budgets
- Team
- Co-ordination, supervision and review of audit work
What is involved in
- Understanding entities environment
Provided detail on
- Industry activities / strategies
- Financial framework
- Use of service organisations
What is involved in
- Understanding accounting systems and internal contro
- Accounting policies
- Previous assessment of internal controls
What is involved in
- Risk
- Assessment of areas of risk
- Potential areas of significant risk
What is involved in
- Analytical procedures
Identify trends to see if expectations have been met
What is involved in…
- Materiality
Calculate the materiality
What is involved in
- Consequent nature, and extent of audit procedures
- Details of the focus on specific areas.
- Detail on the extent of use of audit software and reliance on internal audit.
- Approach to the audit
What is involved in
- Timings
When are the activities going to take place?
- Interim
- Final
- Signing of report
What is involved in
- Deadlines and budgets
Stating when the work has to be done by, and what resources are available to do this.
What is involved in
- Team
Ensuring appropriate staff are available for the audit
What is involved in
- Co-ordination, supervision and review of audit work
Details the extent of
- involvement of experts,
- client locations and;
- staffing requirements for the audit.
What is an interim audit?
It is voluntary, conducted in between two final audits (during an accounting period)
What is a final audit?
Done after the end of the accounting period, and focuses on confirming amounts in the financial statements
What is described below?
Dishonestly obtaining an advantage, avoiding an obligation or causing a loss to another party
Fraud
What’s the difference between fraud and error?
Error is unintentional
What are two types of fraud?
- Fraudulent financial reporting
- Misappropriation of assets
What is described below?
Deliberately misstating the accounts to make the company results
better / worse than the actual results
Fraudulent financial reporting
What is described below?
The theft of a companies assets
Misappropriation of assets
What are 5 indicators of fraud?
- Only having photocopied documents
- Inconsistent responses
- Denied access to records
- Delay of information being given
- Unknown transactions
What are the auditors responsibility in respect to fraud?
Responsible for obtaining reasonable assurance that the financial statements
taken as a whole are free from material misstatement, whether caused by fraud or error.
What do the ISA’s require in regards to…
Discussion among the audit team
Discussion is held within the team on risks and responsibilities of fraud and error
For members not present at the meeting the engagement partner should determine which matters are to be communicated to them.
What should the auditor consider doing if fraud is detected?
Extend testing into other areas as risk of providing an incorrect audit opinion has increased
Who do we report fraud to?
- Management (consider who is involved)
- Those charged with governance
- External (may need to seek legal advice)
Who is responsible for preventing and detecting fraud and error?
Those charged with governance
What do those charged with governance have to do to prevent fraud and error?
- Establishing systems that prevent and detect fraud and error.
- Monitoring systems to prevent and detect fraud and error.
Who’s responsibility is it to ensure that the operations are conducted in accordance with the provisions of laws and regulations
Management
Are Auditors responsible for preventing non-compliance with laws and regulations,
No - and cannot be expected to detect non-compliance
When do auditors have to obtaining sufficient appropriate audit evidence regarding compliance with laws and regulation?
When it has a direct impact on the financial statements
Laws and regulations which DO NOT HAVE A DIRECT EFFECT on the determination of material amounts and disclosures in financial statements, but may impact on…
The entity’s ability to trade
What should the auditors enquire with management on?
Whether the entity is complying with relevant laws and regulations
What should auditors be inspecting in relation to relevant laws and regulations?
Correspondence with regulatory authorities
What are the five audit procedures in relation to Laws and Regulations
Obtaining a general understanding of the client’s legal and regulatory environment
Inspecting correspondence with relevant licensing and regulatory authorities
Enquiring of management and those charged with governance as to whether the entity is compliant with laws and regulations
Remaining alert to possible instances of noncompliance; and
Obtaining written representations that the directors have disclosed all instances of known and possible noncompliance to the auditor.
Why do we do analytical procedures during the planning stage?
Used to understand
- The entity
- Risk of material misstatement
Why do we do analytical procedures during the final audit?
To obtain sufficient and appropriate evidence
Why do we do analytical procedures during the final review?
To assist on the overall conclusion on whether the financial statements are consistent with the auditors understanding of the entity.
