Chaptet 2 Planning And Obtaining Flashcards
Appointment considerations
MANICS
Management integrity
Adequate resources
Nature of engagement
Identification
Communication with previous auditor
Stability
Due diligence
Know your customer
Low risk : Long term prospects Well financed Strong internal controls Conservative accounting policies Knowledgable competent management
High risk
Current/future issues in industry
Potential finance/ cash flow issues
Significant control weaknesses
Regular changing of accounting policies / ignoring them
Absentee key members of management team or high turnover of key staff members
After acceptance
Ensure proper removal of previous auditor
Ensure new appointment is valid
Submit a letter of engagement
New auditor obtains all books and records of client held by previous auditor
Letter of engagement
Objectives
Scope
Responsibilities of Audit
Outlines reporting framework and opinions which may be given
Agree terms of engagement
Define responsibilities
Provide written confirmation
Contents of engagement letters
ADDS TO FIRMS FEES
Auditors responsibilities
Directors responsibilities
Directors representations
Scope/objectives of engagement
Terms agreed
Other services
Fraud
Irregularities
Report to management
Management of the audit
Specialists (required to value large/unusual assets)
Fees- sometimes - indication of basis of fee may be included but not actual quote
Planning
Risks and expectations considered
Target risky areas
Understand entity
Assess risk of material misstatement
Select audit procedures to respond to risk of material misstatement
Planning - matters to consider when obtaining an understanding of the entity
Industry- regulatory -external factors (inc financial reporting framework)
Nature of entity
Objectives strategies and related business risks
Measurement and review of financial performance
Selection and application of accounting policies
Internal control
Knowledge of business techniques
Inspection
Observation
Enquiry
Analytical procedures
Profesional judgement areas
Materiality and audit risk
Extent and timing of audit
procedures
Sufficient and appropriate audit evidence obtained
Evaluating management judgements
Drawing conclusions on evidence obtained
Audit risks
AR = IR x CR x DR
Inherent
Control
Detective
Significant risks
May require special audit consideration
Fraud
Relating to recent significant economic, accounting or other developments
Complexity of transaction
Significant transaction with related party
Degree of subjectivity in financial info
Unusual transaction
Analytical procedures
Evaluation of financial info through study of plausible relationships among both financial and non financial data
Prior periods
Budgets and forecasts
Industry information
Predictive estimates
Relationships between financial info (ratio analysis)
Relationships between financial and non financial info (payroll costs to number of employees)
Investigation of unusual / significant changes
Audit strategy
Formulation of general strategy
Scope , Timing ,Direction
Also guides the development of the audit plan
Consider impact of previous analysis / info of industry
Review and consideration of key audit factors
Nature timing and extent of resources necessary
Management , direction and supervision of audit team
Audit plan
More detailed than audit strategy
Nature timing and extent of specific audit procedures required
Planning procedures takes place over the course of the audit to ensure audit complied with ISAs
Key objectives:
- Ensure attention given to important areas (pro judgement)
- identify problems and resolve them
- ensure work is properly organised and managed
- assign work to engagement team members according to ability, experience and technical knowledge
- Facilitate direction and supervision of engagement team members
