9. Planning of an Audit Flashcards
What and Who does planning of an audit involves?
The engagement partner and other key members of the engagement team shall be involved.
Planning an audit involves:
establishing the overall audit strategy AND
developing audit plan.
What is the importance of planning?
Planning helps to:
complete engagement effectively and efficiently,
identify and resolve potential problems,
pay attention to imp areas of audit,
assists in selection of appropriate team and proper assignment of work to them,
perform direction, supervision and review,
coordinate on timely basis with component and experts.
What is documentation of planning?
Planning standards require auditor to establish and document the following:
Overall audit strategy,
Audit plan,
Significant changes in audit strategy.
Define Audit Strategy?
Audit strategy sets the scope, timing and direction of audit. It also guides the development of the audit plan.
Comment on the resources needed to perform any engagement?
- when resources are needed.
- how much of the resources are to be used and where
- how to direct, supervise and review resources during the audit.
Define audit plan?
The audit plan is more detailed than the overall audit strategy. It includes nature, timing and extent of audit procedures to be performed by engagement team members on each area of financial statements.
What are the matters documented in the audit plan?
- Nature, timing and extent of planned risk assessment procedures.
- Nature, timing and extent of further audit procedures at assertion level for each area of financial statement. This includes:
Test of controls
Substantive procedures
What to do as additional activities prior to starting the initial audit?
- perform procedures relating to accepting the client relationship and
audit engagement. - discuss with management major issues regarding initial selection
as auditor and communicate those to TCWG . - Communicate with predecessor auditor and make arrangements.
- Procedures to obtain sufficient appropriate evidence
- Other procedures with firm’s quality control system.
What is interim audit?
Interim audit is the part of audit which takes place before the year end.
What are the typical procedures performed in interim audit?
- Obtaining understanding of:
entity and assessing inherent risk
internal control and assessing control risk. - Documentation and testing of internal control
- Preliminary analytical procedures.
- Test profit and loss transactions.
- Identification of potential problems.
What are the advantages of interim audit?
- earlier identification of significant matters
- flexible planning of human resources
- stakeholders receive audit report quickly.
- Burden of audit team is spread
Define final audit?
Final audit takes place on or after the year end. It concludes with the auditor forming and expressing an opinion on financial statements for the whole year.
What is the relation between risk and procedures?
If the risk is high then more procedures will be performed at the year end.
What is materiality?
It is the term used to describe the effect of misstatements or scope limitation. Items are considered material if they individually or in aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of financial statements.
Materiality depends on nature and size of misstatement.
How is materiality determined?
Auditor determines the materiality through his judgment considering users of financial statements.
