Planning An Audit Flashcards
Planning Activities
Planning an audit involves:
*establishing the overall audit strategy (scope,timing and direction of engagement)
*developing audit plan ( nature,timing and extent of audit procedures for areas of F/S)
Who is involved in planning
*engagement partner
*And other senior members of the engagement team shall be involved)
Importance/objectives of planning
1) complete the engagement efficiently and effectively.
2) identification of potential problems (risks) on timely basis
3) pay attention to important areas of audit
4) assist in selection of appropriate team and proper assignment of work to them
5) perform direction, supervision and review of the engagement team
6) co-ordinate on timely basis with component auditor and expert,if any
Documentation of planning
Planning standards require auditor to establish and document following:
*Overall audit strategy
*Audit plan
*Significant changes in audit plan and overall audit strategy along with reasons of change
Audit strategy
Audit strategy sets the scope,timing and direction of audit and guides the development of the audit plan
Characteristics of the engagement
*AFRF
*industry specific requirements
*Need of specialized knowledge
*Expected audit coverage,including the number and locations of components
*Availability of client personnel and data
*Effect of IT on audit procedures
*Whether entity has internal audit function,if so, whether to use the work of internal auditor or to use internal auditor to provide direct assistance
*Expected use of audit evidence obtained in previous periods
Reporting objectives
*entity’s timetable for reporting
* Organisation of meeting with TCWG and management to discuss important matters of audit
* Discussion with management regarding type and timing of audit report and other communication e.g management letter, communication with TCWG
*communication with component auditor regarding type and time of report to be issued by him.
Factors affecting directions
This includes:
*Determination of materiality threshold
*emphasis on application of professional skepticism in certain areas
*Areas of high risks
*Audit approach to address risks ( system based or substantive)
*And recent developments in industry, legal and financial reporting requirements.
Resources necessary to perform engagement
*how much resources are to be used and where
*When resources are needed
*How to direct, supervise and review resources during audit
Results of preliminary engagement activities
Results of preliminary engagement activities and knowledge gained on other engagements performed for the entity
Audit plan
The audit plan is more detailed than the overall audit strategy and includes the nature, timing and extent of audit procedures to be performed by the engagement team members on each area of F/S
Matters documented in audit plan
*nature,timing and extent of planned risk assessment procedures
*Nature,timing and extent of further audit procedures at assertion level on each area of financial statements,this includes
➡️Test of controls ( if auditor wants to rely on controls
➡️ Substantive procedures ( depending on risk assessment)
Additional planning consideration for initial audit engagement
To reduce the higher audit risk on initial audit, auditor performs following additional activities prior to starting an initial audit.
1) perform procedures regarding accepting of client and audit engagement (specially considering integrity of management
2) discuss with management major issues regarding initial selection as auditor (e.g any disagreement on accounting treatment or any indication of scope limitation) and communicate to TCWG these matters and their effect on audit strategy,audit plan and audit report.
3) communicate with predecessor auditor and make arrangements to review the working papers
4) procedures to obtain sufficient appropriate audit evidence regarding opening balances
5) other procedures in accordance with firm’s quality control system
Interim audit
Interim audit is the part of audit which takes place before the year end
Typical procedures performed in interim audit
*obtaining understanding of entity and assessing inherent risk
*Obtaining understanding of internal control and assessing internal control
*Documentation and testing of internal controls
* Preliminary analytical procedures in risk assessment
* Testing of profit and loss transactions till interim date
* Identification of potential problems which may affect the final audit work
