Audit Planning: Non-specific risks and procedures

Question 1

FD/FC recently left

Answer 1

possible control weakness

Less reliance placed on controls

Question 2

Staff change/spreadsheet use

Answer 2

possible control weakness

Less reliance placed on controls

Question 3

New client/first year audit

Answer 3

risk of misstatement in opening balances
Consider if current year work provides evidence of opening balances
Audit opening balances e.g. check receipts from receivables
Obtain previous auditor working papers
Establish reasons why previous auditor didn’t seek reappointment

Question 4

Tight reporting deadline

Answer 4

risk that insufficient time for subsequent events review

Allocate sufficient staff to ensure work completed to required standard

Question 5

Outsourcing of function (payroll/accounting)

Answer 5

risk of errors by external provider
Understanding services provided and if transactions material
Inspect payroll/accounting reports provided and reconcile to FS
Obtain report from service company audit re: internal controls

Question 6

Numbers: 
Journals posted out of working hours/around year end
Posted to suspense account
Little journal explanation
No authorisation
One user dominant

Answer 6

Risk of fraudulent journals through management override of controls
Enquire with management reason why posting outside of work hours
Identify similar transactions using Stacked Bar Charts in Explore Module
Enquire with management to identify nature of transaction
Obtain contract and agree transaction amount and date
Extend procedures to similar transactions
Consider impact on audit approach: less controls reliance
Use Bump Chart isolate transactions by that user and investigate higher risk transactions e.g. credit notes

Question 7

Bonus based on FS/Directors under pressure/FS used for bank loan application

Answer 7

Incentive to overstate through management override of controls
Reduce materiality
Additional testing on judgmental balances eg asset UEL, capitalised costs, provisions, revenue recognition, inventory NRV

Question 8

Numbers:
Revenue decline
Losses
Net Liabilities/Negative Equity
Cash/Working Capital issues
Loans/Interest issues
Assets unusable

Answer 8

Going concern risk
Obtain written representations from management regarding recovery plan and GC basis
Examine cash/profit forecasts for next 12m
Assess whether able to meet liabilities as they fall due
Consider if assumptions reasonable
Sensitivity analysis on assumptions
Analyse post year end transactions to see if forecasts accurate

Question 9

Scenario:
Competitors
Customer complaints
Loss of key customer
Market downturn
Legal issues
Technology change
Adverse publicity

Answer 9

Going concern risk
Inspect board minutes for recovery plan
Inspect loan terms to see if there’s been a breach and if loan will be extended
Inspect correspondence with bank/lawyers/key customer or supplier
ISA570: Auditor must obtain evidence on appropriateness of GC basis and whether material uncertainty exists