AUD 2.4 - Planning Flashcards
During planning, the auditor is required to:
- Obtain knowledge on the clients business/industry
- Develop an audit strategy
- Develop an audit plan
- Perform risk assessment procedures
The nature, extent, and timing of supervision by the engagement partner depend on:
- Size and complexity of the entity
- Nature of the work assigned
- Assessed risks of material misstatement
- Qualifications of the assistants
The most common sources of industry information are:
AICPA accounting and audit guidelines
Trade publications and professional trade associations
Government publications
AICPA accounting trends and techniques
What may the auditor due to obtain knowledge relating to the clients business before starting the audit:
Tour client facilities
Review the financial history of the client
Obtain an understanding of client accounting
Inquire of client personnel
This outlines the scope of the audit engagement, the reporting objectives, timing of the audit, required communications, and the factors that determine the focus of the audit. It also includes a primary assessment of materiality and tolerable misstatement.
The audit strategy
What factors effect the focus of the audit (nature):
Prelim evaluations of materiality, audit risk, and internal control
Material account balances
Areas with higher risk of material misstatement
Significant accounting changes
Significant business and industry developments
Characteristics that define the scope of the audit include (extent):
Locations and reporting currency of the entity
Reporting requirements
Size & complexity
Information technology used
Prior experience with the entity
Use of service organizations
Extent of evidence related to the effectiveness of internal controls
What should be considered when determining the audit reporting objectives, timing, and required communications (timing):
Deadlines for interim and year end reporting
Key dates for meeting with management
Expected type and timing of reports
Nature and timing of audit team communications
Communication with third parties
More testing is done at interim if internal controls are strong or weak?
If strong - more testing at interim
If weak - more testing at year end
This is based on the audit strategy and outlines the nature, extent, and timing of the procedures to be performed during the audit. The two are closely interrelated and may overlap to come extent.
The audit plan
Is a written audit plan required?
YES
These are performed to obtain evidence on which to base the audit opinion. They may be categorized as either risk assessment procedures or further audit procedures.
Audit procedures
Used to obtain an understanding of the entity and its environment, including its internal control, in order to assess the risks of material misstatement and determine the nature, extent, and timing of further audit procedures.
Risk assessment procedures
Are risk assessment procedures required for all financial statement audits?
YES
Include tests of the operating effectiveness of internal controls and substantive procedures:
Further audit procedures
