Audit Planning & Analytical Procedures

Question 1

Planning 4 key steps

Answer 1

1. Ensure that ethical requirements continue to be met
2. Ensure the terms of the engagement are understood
3. Establishing the overall audit strategy
   -identify the relevant characteristics of the engagement
   -discovering key dates for reporting and other communications
   -determine materiality, preliminary risk assessment, whether internal controls are to be tested
   -consideration of when work is to be carried out
   -consideration of team members available, their skills, and how and when they are to be used for
4. Developing an audit plan including risk assessment procedures, audit tests and any other procedures necessary to comply with ISA Standards the audit plan and any significant changes to it during the audit must be documented

Question 2

Audit strategy

Answer 2

-> general strategy for the audit, which sets the scope, timing and direction of the audit and guides the development of the audit plan:
1. Materiality levels
2. Reporting framework used
3. Preliminary risk assessment
4. Audit approach
5. Use of experts
6. Timings
7. Team members
8. Budgets
9. Deadlines
-live document that is updated throughout the audit if things change

Question 3

Audit plan

Answer 3

-> more detailed document. Shows how the overall strategy will be implemented, sets out nature, timing, and the extent of audit procedures to be performed by engagement team members to obtain sufficient appropriate audit evidence
-> responsibility of external auditor
-> audits are planned to:
1. Ensure appropriate attention is devoted to important areas of the audit
2. Identify potential problems and resolve on a timely basis
3. Ensure the audit is properly organised and managed (effective and efficient)
4. Select engagement team and assign work to the members properly based on their skill
5. Facilitate direction and supervision of engagement team members
6. Facilitate review of work
7. Coordinate work done by experts

Question 4

6 key areas of the audit strategy

Answer 4

1. Understanding the entity and its environment
   -> provides details of the industry area that the company is in along with specific information about the activities and strategies of the individual client
2. Understand the accounting and internal control system
   -> details of accounting policies of the client and previous assessments of internal control systems indicating the expected extent of reliance on those systems
3. Risk and materiality
   -> the assessment of risk for the client and risk of fraud and error and the identification of significant audit areas. The materiality level of audit planning purposes.
4. Nature, timing, and extent of procedures
   -> details of the focus on audit work on specific areas. Detail on the extent of use of audit software and possible reliance on internal audit
5. Co-ordination, direction, supervision and review
   -> details the extent of involvement of experts, client locations and staffing requirements for the audit
6. Other matters

Question 5

How to understand the entity and its environment

Answer 5

1. Inquiries of management and others within the entity
2. Analytical procedures
3. Prior period knowledge
4. Observation and inspection
5. Discussion of the susceptibility of the financial statements to material misstatement among the engagement team
6. Current year budgets and management accounts
7. Financial statements of competitors

Question 6

Materiality -ISA (UK) 320 (IMPORTANT)

Answer 6

-materiality in planning and performing an audit
-depends on size and nature of misstatements, judgement of the auditor
-level of misstatement that affects the decisions of the users of the financial statements
-must be set at the planning stage of the audit
-must be reviewed during the audit (performance materiality)