ISA 315 : Understanding Entity and Its Environment and Stages in Audit

Question 1

How many stages exist in audit ?

Answer 1

3 stages exist in audit which are :-
#Planning 
# Execution
# Completion

Question 2

Why do we plan the audit / benefits of planning the audit ?

Answer 2

- Audit planning helps to 
# Have work organized and completed effectively.
# identify important areas of the audit to be able to devote appropriate time to those areas.
# To ensure appropriate staff is selected and assigned to the audit,
# To identify problematic areas of the audit and resolve them in a timely basis.

Question 3

What are the steps in planning stg. of the audit ?

Answer 3

1. Assess risk and understand the entity and its environment.
2. Based upon risk assessment, develop an audit strategy and audit plan.
3. Select audit team.
4. Assess materiality
5. Select audit procedures to begin the work.

Question 4

What is an audit strategy ?

Answer 4

-An overall approach to carrying out the audit and it sets out the scope, timing and direction of the audit.

Question 5

What is an audit plan ?

Answer 5

-An audit plan is a detailed audit strategy which sets out the nature, timing and extent of the audit.

Question 6

What is scope of the audit ?

Answer 6

• The characteristics of the audit such as the depth and range of the audit.
• the no. of locations of the client’s branches and warehouses
• The no. of CAATs to be applied
• The financial reporting framework to be used.
• The need of any experts

Question 7

What is timing of the audit ?

Answer 7

• The deadline of the audit
• the timetable to complete the audit work.
• The frequency of meetings to be held with TCWG and MGMT
• The frequency of team meetings to be held
• The no of reviews of work to be performed.

Question 8

What is direction of the audit ?

Answer 8

• Determination of materiality
• Level of professional skepticism to maintain
• Effect of IT on audit
• Volume of transactions
• Results of previous audit

Question 9

What to understand about the entity ?

Answer 9

• Nature and size of the business operations
• Size of the market and industry
• Objectives and mission of the company
• laws and regulations of the industry
• Its product and market portfolio
• competitors
• key customers
• suppliers
• stakeholders
• future strategies
• previous F.S and audit report

Question 10

Why do we need to understand about the entity ?

Answer 10

• To develop audit strategy and audit plan.
• To assign sufficient and appropriate team members to the audit.
• To ensure client is complying with industry laws and regulations.
• To identify risky and areas of significant judgement in the audit.

Question 11

How to understand about the entity ?

Answer 11

• Board meeting minutes : Gives an overview of the decisions made by the board members and their approach to solving problems.
• Previous year audit report : Gives info about the risky and key issues identified in last year’s audit and to know whether report was modified or not.
• Previous year F.S : Gives information about the company’s financial position, its liquidity status, its size in relation to volume of transactions and key accounting policies applied.
• Discussion with mgmt. : Provides info about the company’s new future strategies and any important changes made in the company.
• Website and internet : Provides information about background ( nature of company’s operations), no. of locations, its mission and objectives and values