Audit Planning & Supervision Flashcards
What are the stages of an audit?
Pre-engagement acceptance activities > Engagement letter > Audit strategy & planning > Internal control evaluation > Substantive procedures > Audit completion > Report preparation and communication > Post-audit responsibilities and audit quality control
What are the 5 overall steps of the audit strategy?
Audit scope
Reporting objectives
Identifying the nature, timing, and extent of the resources required for the audit
Assessing engagement risks
Considering the need for experts
What should be considered when developing a detailed audit plan?
Risk assessment procedures
Nature, timing, and extent
Linkage with assessed risks
Documentation
Continually revising and updating the audit plan as necessary based on findings
Establish materiality
Planning for the use of technology
What does the nature, timing, and extent of planning activities depend on?
Size and complexity of the entity
Engagement team members’ previous experience with the entity
Changes in circumstance during the audit
What does understanding the entity and its environment include?
Industry, regulatory, and external factors
Nature of the entity
The entity’s objectives and strategies
What factors should be considered when determining materiality?
Qualitative and quantitative
What is performance materailty?
It is set less than overall materiality and is used primarily for determining the extent of audit procedures.
What does performance materiality provide the auditor?
A margin for potential undiscovered errors.
It provides a buffer, ensuring that the aggregate of uncorrected and undetected immaterial misstatements don’t exceed materiality for the financial statements as a whole.
What are the steps of risk assessment?
Determine an acceptable level of audit risk
Assess inherent risk and control risk to determine risk of material misstatement
Determine detection risk
Determine nature, timing, and extent of audit procedures
What is the audit risk model?
Audit Risk = Inherent Risk x Control Risk x Detection Risk
Audit Risk = Risk of Material Misstatement x Detection Risk
What is the risk response when the risk of material misstatement is high?
Audit Risk ↓ = RMM ↑ x Detection Risk ↓
Nature, timing and extent of audit procedures ↑
Nature: more extensive tests
Timing: more testing towards year end
Extent: increase sample size
What is the risk response when the risk of material misstatement is low?
Audit Risk ↓ = RMM ↓ x Detection Risk ↑
Nature, timing and extent of audit procedures ↑
Nature: less extensive tests
Timing: more testing towards interim
Extent: decrease sample size
What is an error?
Errors refer to unintended mistakes that occur in the financial statements, not resulting from fraudulent activityW
What is fraud?
Fraud refers to the deliberate acts to deceive or mislead, which can result in a misrepresentation of the financial statements.
What are the various types of fraud?
Financial reporting fraud
Misappropriation of assets
Illegal acts
