Chapter 3 - Planning, Controlling And Recording Flashcards
Engagement letter
Reduces expectation gap by outlining responsibilities.
Contract between client and auditor.
Planning an audit: why? Procedures?
Why? - ensures appropriate staff used, relevant areas worked on, compliance with ISAs.
Procedures? -
1) Review
2) client meeting to discuss
3) prepare audit approach
4) audit admin - time/cost, staff etc
Materiality
An item is material if its omission could be expected to affect the decision of the user.
0.5 - 1 turnover
1 - 2 gross assets
5 - 10 profits before tax
Low working materiality level = lower risk of missing undetected transactions
Analytic review
Performed at the planning stage.
Comparing this years accounts to last years, using FS, budgets and industry averages.
Identify risky areas that need more work and substantive testing.
Audit risk
Risk of the auditor forming an inappropriate opinion:
Inherent risk - industry and company
Control risk - controls overridden
Detection risk - auditors don’t pick up the error
Detection risk compromises sampling and non sampling risk.
If Inherent and control risks high then detection must be low risk.