Auditing Planning & Documentation Chapter 7 Planning & Documentation Chapter 7
Highlights Examine preplanning phase of the audit Examine preplanning procedures Audit working papers purpose and organization Examine preplanning phase of the audit Examine preplanning procedures Audit working papers purpose and organization
Why to we plan the audit? Aid in collecting sufficient and appropriate evidence Aids in keeping cost reasonable Prevent client misunderstandings Assists in planning staffing requirements
1.Preplan 2.Collect background info 3.Gather information on Client’s legal obligations 4.Perform analytical procedures 5.Set materiality assess Audit Risk and Inherent Risk 6.Understand and assess Internal Control Risk 7.Develop overall audit plan and associated program 1.Preplan 2.Collect background info 3.Gather information on Client’s legal obligations 4.Perform analytical procedures 5.Set materiality assess Audit Risk and Inherent Risk 6.Understand and assess Internal Control Risk 7.Develop overall audit plan and associated program Audit Planning Process Steps
This Chapter’s Focus
Engagement Letter Outlines audit purpose and coverage Outlines all parties responsibilities including management of the firm May include preliminary schedule of audit timing and reporting deadlines Should be initially signed by the auditor on behalf of the firm Agreement should be indicated by a signature of client representative(s) Outlines audit purpose and coverage Outlines all parties responsibilities including management of the firm May include preliminary schedule of audit timing and reporting deadlines Should be initially signed by the auditor on behalf of the firm Agreement should be indicated by a signature of client representative(s)
Staff Selection Another consideration continuity Continuity = i.e. staffing audit with those who have worked the same audit in prior years Increases closeness to client Familiar with operations and clients business already as well as prior audit results Another consideration continuity Continuity = i.e. staffing audit with those who have worked the same audit in prior years Increases closeness to client Familiar with operations and clients business already as well as prior audit results
Related Party Transactions Can affect accounting treatment of transaction depending on level of influence Transactions need often to be disclosed May increase inherent risk Can affect accounting treatment of transaction depending on level of influence Transactions need often to be disclosed May increase inherent risk
Background Information Permanent Files – normally contain this type of background information Historical point of view including business history, accounting policies, senior officers and officials, incorporation etc. Permanent Files – normally contain this type of background information Historical point of view including business history, accounting policies, senior officers and officials, incorporation etc.
Current Files Contents Current file for each year of audit Risk and materiality assessment Audit Plan/Program Trial Balance My contain lead schedules – listing of account totals making up an item on the TB Current file for each year of audit Risk and materiality assessment Audit Plan/Program Trial Balance My contain lead schedules – listing of account totals making up an item on the TB Adjusting Entries Supporting Schedules and audit work performed Audit Documentation – i.e. reconciliation, reperformance results, testing results, etc.
Considered to be exclusive property of the auditors
Audit Working Papers Tick Marks contain a standard set of symbols indicating what work has been done on certain balances If non standard symbols are used normally a legend is provided All trial balances/F/S are indexed to their supporting schedules using a form of referencing contain a standard set of symbols indicating what work has been done on certain balances If non standard symbols are used normally a legend is provided All trial balances/F/S are indexed to their supporting schedules using a form of referencing