Topic 7 - Planning Flashcards
give the overview of the audit strategy and planning process (flowchart- 3 items)
Establish the overall audit strategy ^ Develop and audit plan ^ Start to carry out audit procedures
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what does planning involve
It involves establishing:
* the overall audit strategy for the engagement and
- developing an audit plan
the audit strategy and audit plan should be updated and revised as necessary during the course of the audit
Audit planning is addressed by ISA 300 Planning an Audit of Financial Statements.
what are the benefits of planning for the audit of FS
Planning ensures that the risk of performing a poor quality audit (and ultimately giving an inappropriate audit opinion) is reduced to an acceptable level.
▪ Helping the auditor to devote appropriate attention to important areas of the audit like risky/more material areas
▪ Helping the auditor to identify and resolve potential problems on a timely basis.
▪ Helping the auditor to properly organize and manage the audit engagement so that it is performed in an effective and efficient manner.
▪ Assisting in the selection of engagement team members with appropriate levels of capabilities and competence- Work is properly assigned to the individual team members
▪ Facilitating the direction and supervision of engagement team members and the review of their work.
▪ Effectively coordinates the work of others, such as experts and internal audit.
▪ These reduces risk of giving the wrong opinion.
which should be developed first? audit plan or audit strategy
the standard states that an audit plan will be developed after the overall strategy has been established
the audit strategy and audit plan should be updated and revised as necessary during the course of the audit
what is an audit strategy (general definition) and what does it allow the auditor to determine
Kate: documenting all info that auditor needs to do the audit
The audit strategy sets out in general terms how the audit is to be conducted and sets the scope, timing and direction of the audit. The audit strategy then guides the development of the audit plan, which contains the detailed responses to the auditor’s risk assessment.
It allows the auditor to determine
- resources to deploy for specific audit areas (e.g. experience level, external experts)
- the amount of resources to allocate
- When these resources are to be deployed
- how the resources are managed, directed and supervised, including the timings of meetings, debriefs and reviews
What are the sections included in the audit strategy
LIST THEM- 10 items
and mention what does The audit strategy allows the auditor to determine:
(Think about the acowtancy video of three section
1 Understand the entity
2 Logistics
3 Approach
The audit strategy sets the scope and direction of the audit
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
The audit strategy allows the auditor to determine: The resources to deploy for specific audit areas (e.g. experience level, external experts). The amount of resources to allocate (i.e. number of team members). When these resources are to be deployed. How the resources are managed, directed and supervised, including the timings of meetings, debriefs and reviews.
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 1
Knowledge of the business
Provides details of the industry area that the company is in along with specific information about the activities and strategies of the individual client.
Financial framework- IFRS/UK GAAP
Use of service organisation’s
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 2
Details of accounting policies of the client and previous assessments of Internal control systems indicating the expected extent of reliance on those systems.
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 3
The assessment of risk for the client and risk of fraud and error
and the identification of significant audit areas.
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 4
This is identifying trends, expectations and seeing if the expectations have been meet, if not this would highlight a potential risk
It would also help identify risk areas
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 5
The materiality level for audit planning purposes.
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 6
Overall approach
Details of the focus on audit work on specific areas.
Detail on the extent of use of audit software and possible
reliance on internal audit.
Approach to the audit
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 7
When is the audit going to take place
Interim
Final
Discussions with third party, and those charged with governance
Signing of the report
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 8
Stating when the work has to be done by, and what resources are available to do this.
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 9
Ensuring that the appropriate staff are available for the audit, right experience, skills and knowledge
The following are sections of the audit strategy:
1 Understanding the entity’s
environment
2 Understand the accounting and
internal control systems
3 Risk
4 Analytical procedures
5 Materiality
6 Consequent nature, and extent of
audit procedures
7 Timing
8 Deadlines and budgets
9 Team
10 Co-ordination, supervision and review of audit work
Q- What is included in 10
Details the extent of involvement of experts, client locations and
staffing requirements for the audit.
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what is audit plan
The audit strategy sets the overall approach/scope and direction of the audit and determines it’s development WHEREAS the audit plan fills in the operational details of how the strategy is will be implemented
▪ the nature, timing and extent of risk assessment procedure
▪ the nature timing and extent of further audit procedures, including:
- WHAT audit procedures are to be carried out
- WHO should do them
- HOW much work should be done (sample sizes etc)
- WHEN the work should be done (interim vs Final)
- other necessary procedures
what is included in an audit plan.. detailed
The following are examples of matters that would be included in the audit plan:
✓ A description of the nature, timing and extent of planned risk assessment procedures (to assess the risks of material misstatement)
✓ This would include assessment of inherent risk and control risk at both the entity and assertion level. An important element of the plan would be the understanding and assessment of the control environment of the organization.
✓ A description of the nature, timing and extent of planned further procedures at the assertion level for each material class of transactions, account balance, and disclosure.
✓ This would include an explanation of the decision
▪ whether to test the operating effectiveness of controls (an important decision is whether reliance is to be placed on controls).
▪ on the nature, timing and extent of planned substantive procedures (this would depend on the decision as to the level of control risk).
✓ Audit procedures required to be carried out for the engagement in order to comply with ISAs, for example, the use of external confirmations to obtain sufficient appropriate evidence at the assertion level.
✓ Materiality
✓ Timetable of detailed audit work
✓ Allocation of work to team members.
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what is an interim audit
It is VOLUNTARY, conducted in between two final audits (during an accounting period)
2/3 months before year end
what is the purpose of an interim audit
Allows the auditor to spread out their procedures. Useful when there is increased detection risk due to a right reporting deadline
what is a final audit
Done after the end of the accounting period, and focuses on confirming amounts in the financial statements
what is the purpose of an final audit
to obtain sufficient appropriate evidence in respect of the financial statements. The auditor’s report will be issued once the final audit is complete.
with regard to the timing, when is interim audit performed
▪ Before the year end
▪ Early enough not to interfere with year end procedures
▪ Early enough to give adequate warding of specific problems
▪ Late enough to ease the pressure on the final audit
with regard to the timing, when is final audit performed
performed after the year end
what are the work carried out for the interim audit
▪ Recording the system of internal control.
▪ Carrying out tests of control on the company’s internal control system and evaluating its effectiveness to determine the level of control risk.
▪ attending perpetual inventory counts
▪ Performing sufficient substantive testing of transactions and balances to be satisfied that the books and records are a reliable basis for the preparation of financial statements.
- -> transactions for the year to date
- -> material transactions e.g. purchase of new non current assets
▪ Identification of potential problems/risks that may affect the final audit work.
