Lecture 3 - Planning and risk assessment (2) Flashcards
PLANNING AN AUDIT – WHY?
-One of the most important steps in audit planning is
gaining an understanding of the client’s business and
industry.
Auditors plan an audit engagement to:
-Obtain sufficient & appropriate evidence
-Keep audit costs reasonable
-Avoid misunderstanding with the client
-In other words the aim is to run an effective
& efficient audit
A more detailed audit plan involves…..
Establishing the overall audit strategy and
Developing an audit plan
Initial planning allows us to draw up an…..
Audit strategy
An audit strategy sets out…..
In general terms how audit is to be conducted.
This sets the:
-Scope
-Timing and
-Direction
of the audit, in line with the identified risks.
Auditors must assess the risk of material misstatement by…..
Performing risk assessment procedures by:
(i) Substantive tests – can be costly
(ii) Tests of control, Eg. sales:
o Effectively designed
o Effectively operated
o Substantive tests confirm assessment of control risk
Interim audits are conducted……..
Some time before the financial year end, and usually concentrate on tests of control because:
- The control has been effective in prior years
- It may be efficient to test at that time
Advantages of interim audits include:
-Client staff may be less busy at that time
-If controls are found to be inadequate, the auditor can modify the audit plan
-Also time to alert management to any issues
-May reduce the need for audit staff overtime at the
year end
The final audit is likely to concentrate on……
Tests of detail within the year-end financial statements
At the final audit, the work from the interim audit
may need to be…….
‘Rolled forward’ to ensure it is still valid.
The Audit Plan is a detailed……
Plan of the audit, addressing the matters identified in the Audit Strategy - specific planned audit procedures. Both the strategy and plan must be documented (ISA 300).
In planning the audit, auditors obtain and document…
An understanding of the accounting system and control systems to determine their audit approach.
The nature and extent of planning depends on three other things. These are:
- Size & complexity
- Previous experience of audit team
- Changes during the audit period
The audit plan aims to build up……
Sufficient confidence in the audit opinion, by assessing the audit risks and specifying how they will be reduced to an acceptable level
- A combination of:
(i) Controls testing
(ii) Tests of details
(iii) Analytical review
The auditor needs to use the work of other experts because…..
An auditor cannot have knowledge of every profession, and sometimes experts may be needed:
- To value assets – land and buildings, jewellery
- To determine quantities of assets, eg oil underground
- To give legal opinions.
In order to use the work of other experts, the auditor should assess:
-Assess the professional qualifications, experience
and resources of the expert
-Evaluate the objectivity of the expert
-Ensure the scope of the expert’s work is adequate
for the purposes of the audit
-Evaluate the expert’s work as audit evidence
If the audit report is unmodified, there is no need to…
Refer to the use of an expert
If the report is modified as a result of the work of the
expert, the….
Auditor may need to refer to such work and may need legal advice of the experts permission before use
Internal auditors are employed by…..
The management (or those charged with governance) and effectively part of the organisation.
Internal auditors commonly work on assessing….
The systems of internal control of an organisation
The external auditors must assess the internal
auditors for their:
- Professional qualifications and experience
- Policies, procedures and checklists
- Quality, supervision and evaluation of work.
- Sufficient status within the organisation
- Policies regarding employment
