Audit Planning 1 Flashcards
What is the purpose of audit planning?
To conduct the audit in an efficient and timely manner, obtain sufficient and appropriate evidence, ensure adequate attention to critical aspects, minimize audit costs, reduce legal liability, and avoid misunderstandings with the client.
What are the pre-conditions for an audit?
The financial reporting framework used by the client is acceptable, management acknowledges its responsibility for preparing financial statements and establishing internal control, and agrees to provide all relevant information to the auditor.
What should be included in the engagement letter?
The auditor’s responsibilities, the scope of the audit, management’s responsibilities, basis of fees, and arrangements for planning and performance of the audit.
What are management’s responsibilities in an audit?
To prepare the financial statements, select accounting policies, establish effective internal control, design programs to prevent and detect fraud, provide written representations, and inform the auditor of subsequent events.
What is fraud in the context of an audit?
Intentional misrepresentations of financial information by management, employees, or third parties involving manipulation, falsification, misappropriation of assets, suppression of transactions, or misapplication of accounting policies.
What are the auditor’s responsibilities in an audit?
To conduct the audit in accordance with Generally Accepted Auditing Standards, obtain an understanding of the client’s internal control, and provide a reasonable assurance that financial statements are free from material misstatement.
Who is responsible for detecting fraud and error?
Management is responsible for preventing and detecting fraud and error through internal control. The auditor is responsible for having a reasonable expectation of detecting material misstatements due to fraud and error during the audit.
What are management assertions in financial statements?
Implied or expressed representations by management about the existence, completeness, rights and obligations, valuation, and presentation and disclosure of financial statement components.
What are the steps in audit planning?
Pre-plan, obtain background information, understand the client’s legal obligations, perform preliminary analytical procedures, set materiality and acceptable audit risk, understand internal control, assess control risk, and develop an overall audit plan and audit program.
What should be done if the pre-conditions for an audit are not present?
The auditor should not accept the proposed audit engagement and assess whether the circumstances of recurring audits require a revision of the audit terms.
