Module 15 - Audit Process: Planning Flashcards
An auditor must plan an audit to help ensure what?
That audit risk is reduced to an acceptably low level
Planning helps the auditor by:
Helping ensure sufficient and appropriate attention is directed to the important areas of the audit
Helping ensure potential problems are identified and resolved early
Assisting in selection of appropriate engagement staff (and the work assigned to them)
Helping complete work effectively and efficiently
Facilitating direction and supervision of the audit
In order to assess risks on an engagement, the auditor must first what?
Understand the entity
In order to understand the entity, the auditor must what?
Perform risk assessment procedures
The auditor must perform risk assessment procedures to obtain an understanding of?
The entity and its environment (structure/ownership/governance)
(industry/regulatory/other factors)
(Measures used internally and externally to assess financial performance)
Applicable financial reporting framework and accounting policies (appropriate and consistent with framework)
Inherent risk factors will impact susceptibility of assertions to misstatement
Internal controls
Mnemonic for understand of the entity?
What does it stand for?
AEIO U (U has a cross through)
Analytical procedures
Enquiry
Inspection
Observation
Examples of analytical procedures that can be used
Comparison
Ratio analysis
Reasonableness test
Trend analysis
Large and unusual items review
What analytical procedure techniques are commonly used at the planning stage?
Comparison
Ratio analysis
Reasonableness test
Three types of materiality
Overall materiality
Performance materiality
Specific items materiality
The overall responsibility for detection and prevention of fraud lies with who?
The directors
The auditor must assess “what” due to fraud in the financial statements
ROMM
Two types of fraud
Fraudulent financial reporting
Misappropriation of assets
Fraud risks can be organised into three categories
Incentives or pressures
Opportunities
Rationalisations
Are ‘CAATS’ and ‘ADA’ increasingly being used in analytics?
Yes
Five steps an auditor should consider when using ADAs in the audit process:
Consider overall objective of ADA (and how it will be achieved)
Obtain and cleanse the data to be used in the ADA
Consider whether the data to be used is relevant and reliable
Carry out the ADA technique
Evaluate and report on the result of the ADA
