Planning

Question 1

What might happen if audits are not planned?

Answer 1

Time might be wasted doing the wrong work
The really important work might not be done at all
Ultimately, the wrong conclusion might be drawn

Question 2

State the reasons why auditors need to plan audits

Answer 2

ISA requires planning to enable the audit to be performed in an effective and timely manner

To ensure that:

• appropriate attention is directed to important areas of the audit
• potential problems are identified
• work is completed expeditiously

Assists in:

• proper assignment of work to the team
• co-ordination of work done by others

Facilitates review

Question 3

Audit strategy

Answer 3

Covers matters such as:
materiality, risk, audit approach, use of experts/internal audit, timings, team, budget and deadlines

Should be updated as necessary during the course of the audit

Question 4

Set out the benefits and limitations of using analytical procedures to identify risk areas during planning

Answer 4

BENS:
Identifies items for attention that detailed tests may miss
Uses info outside of the accounting records
Comparison of different elements of the FSs

LIMS:
Substantial knowledge of the business is required to perform the procedures and understand the results (therefore experienced staff may be required)
Consistency of results may conceal a material error
May be a tendency to carry out procedures mechanically, without appropriate professional scepticism
Relevant info may not be available

Question 5

Risk factors we need to be aware of when planning an audit

Answer 5

Management override
Inappropriate or unauthorised journal entries
Incorrect revenue recognition

Question 6

Why should care be taken if using a standardised audit pack?

Answer 6

It is important for the audit plan to be tailored to the client

Question 7

Discuss what is meant by the concepts of materiality and a true and fair view

Answer 7

Materiality
Info is material if its omission or misstatement could influence the economic decision making of users
Can be quantitative or qualitative

True and fair
True is accepted as meaning in accordance with the facts and fair as meaning objective or unbiased and concerned with the presentational aspects of info including substance over form
Generally, FSs prepared in accordance with GAAP will give a true and fair view

Question 8

Why must planning be documented?

Answer 8

As a reference at completion – to check that everything identified has been addressed;
As a record, for regulators to inspect as part of their review;
As a defence, in case of legal action;
To preserve the knowledge, for next year’s audit
Required by ISA 300: Planning an audit of financial statements