W7 Audit Planning Flashcards
What is the purpose of audit planning
Ensures effective planning so that the risk of performing a poor quality audit (and giving an inappropriate audit opinion) is reduced to an acceptably low level
What are the benefits of audit planning
Planning enables the auditor to:
- devote appropriate attention to important areas of the audit
- identify and resolve potential problems on a timely basis
- organize and manage the audit so that it is performed in an effective and efficient manner
- select team members with appropriate capabilities and competencies
- direct and supervise the team and review their work
- effectively coordinate the work of others such as experts and internal audit
What is the planning process
1) Preliminary engagement activities
2) audit strategy
3) Audit plan
What is the audit strategy
Sets the scope, timing and direction of the audit and in turn guides the development of the audit plan
What is the audit plan
The plan describes more specifically how the audit will be conducted along with the procedures for obtaining audit evidence
What does the audit plan include
The nature, timing and extent of further audit procedures, including:
WHAT audit procedures should be carried out
WHO should do them
HOW much work should be done (sample size etc)
WHEN the work should be done (interim v final)
any other procedures necessary to conform to ISAs
What does the audit strategy include
Includes:
- reporting objectives, timing and communication
- Characteristics of the engagement
- nature, timing and extent of resources
- Significant factors, preliminary engagement activities and knowledge gained on other engagements
What is the relationship between the audit strategy and the audit plan
The audit strategy drives the nature and content of the audit plan
example:
strategy identifies that a particular type of testing proved to be challenging last year == more experienced staff will be used to carry out the testing this year
strategy identifies that the audit used to be subcontracted but has been brought back == more initial planning work than normal may be required
Difference between in interim and final audit in relation to timing
Interim: completed before the year end
Final: fter the year end
Difference between in interim and final audit in relation to purpose
Interim: allows the auditor to spread out their work and enables more effective planning for final stage
Final: to obtain sufficient appropriate audit evidence to give an opinion on the financial statements
Difference between in interim and final audit in relation to work performed
Interim:
-Documenting systems
-Evaluating controls
-Testing of transactions
for the year to date
-Testing of specific and complete e.g.capital purchases
Final:
- auditing SOFP balances
- testing of transactions that occurred between interim and year-end
-everything else
Should interim audits be performed for every company
No, interim audits are only justified if the client is of a sufficient size because it may increase costs
Are interim audits and final audits different audits performed
They are two stages of the SAME audit-one set of financial statements re audited and one auditor’s report issued
The audit work is merely being performed in two stages:
- some before the year-end (interim)
- some after the year-end (final)
What is the impact of interim audit work on final audit
If the controls tested at interim provide evidence that control risk is low, fewer substantive procedures can be performed
If the controls tested at interim provide evidence that control risk is higher than expected e.g. because controls are not working effectively, more substantive procedures will need to be performed
What is the purpose of audit documentation
Audit documentation requires auditors to prepare and retain written documentation that:
Provides evidence of the auditor’s basis for their report.
Provides evidence that the audit was planned and performed in
accordance with ISAs and applicable legal and regulatory requirements
