Audit Planning Flashcards
Planning the audit
- plan to assess risks and material stuff
- ensure appropriate attention to important areas of audit
- identify potential problems
- audit properly organised and managed > distribute work properly
- facilitate review of staff and work that’s been done
Audit strategy = outline
Audit plan = more detailed
Plan includes:
• risk assessment procedures
• audit tests and other procedures
Significant risks (6)
- risk of fraud
- related to significant economic, accounting or other development
- complexity of transaction
- significant transaction with related party
- degree of subjectivity
- unusual transactions
2 types of fraud
Types of fraud and management
• fraudulent financial reporting
> deliverately misstating financial statements
• misappropriation of asset
> theft
• management responsible for prevention and detection of fraud
• auditor’s objectives:
> identify and assess risks of fraud
> obtain evidence regarding these risks
> respond appropriately to any actual or suspected fraud identified in audit
Limitations of internal controls (5)
- expense
- human error
- collusion
- unusual transactions
- small companies’ lack of segregation of duties and possible management override
Internal controls system (5)
- control environment
- risk assessment
- information system
- control activities
- monitoring
Control activities (5)
- authorisation
- performance review - comparing data
- information processing - includes reconciliations
- physical controls
- segregation of duties
Step-by-step evaluation (4)
- ascertain system
- document system
- perform walk-through test
- evaluate system and assess control risk
Audit strategy (3)
- formulation of general strategy for audit
- sets scope, timing and direction of audit
- guides development of audit plan
Audit plan
- more detailed than audit strategy
- sets out nature, timing and extent of ausit procedures (inc. risk assessment procedures)
- in order to obtain sufficient appropriate audit evidence
Key contents of audit strategy (6)
- understanding entity’s environment
- understanding accounting and internal control systems
- risk and materiality
- consequent nature, timing and extent of procedures
- coordination, direction, supervision and review
- other matters - statutory responsibilities, special conditions etc.
Understanding the entity and its environment (5)
- nature of the entity
- objectives and strategies and relating business risks
- measurement and review of the entity’s financial performance
- internal control
- industry, regulatory and other external factors
Possible ways to determine materiality (3)
- profit before tax: 5-10%
- revenue: 1/2-1%
- total assets: 1-2%
