1 Topic# 2 – Planning and Control Readings: All of chapter 4 and pages 115 – 119 of chapter 5.

2 Planning Authority: ISA 300 Audit Planning–Para. 2 “The auditor should plan the audit work so that the audit will be performed in an effective manner” Approach: A.Obtain/update knowledge of the client B.Prepare the detailed audit approach/strategy C.Make administrative decisions

3 A. Obtain/update knowledge of the client Obtain – for first time clients –Partly achieved during ‘client screening’ phase Update – for continuing clients  Knowledge can be obtained from a variety of sources and is a continuous and cumulative process throughout the audit.  Knowledge must be communicated to staff

4 Matters to consider in relation to knowledge of the business 1.General economic factors 2.The industry: condition affecting the client's business 3.The entity's: directors, management and ownership 4.The entity's business: products, markets, suppliers, expenses, operations etc. 5.Financial performance: factors concerning the entity's financial condition and profitability e.g. trend analysis and comparative analysis. 6.Information Technology 7.Reporting environment: external influences which affect the directors in the preparation of the financial statements.

5 B. Prepare the detailed audit 1.Audit Risk –Inherent, Control & Detection 2.Materiality – set the levels 3.F/S Assertions 4.Accounting System - understand 5.Internal Control – understand, document and test

6 B. Prepare the detailed audit (Cont’d) 6.Errors and Fraud – –Determine the susceptibility of the entity to material misstatements in the f/s resulting from errors and fraud –Design tests to reduce misstatements resulting from errors and fraud 7.Communication with the predecessor auditor (further) 8.Analytical Procedures – to identify areas of potential risk 9.Related Parties - identification

7 B. Prepare the detailed audit (Cont’d) 10.The use of internal auditors A.The use of third parties B.Experts (specialists) C.Another auditor 11.Service organizations 12.Audit Program – required by ISA 300 – Para 10

8 C. Make administrative decisions Selection of staff Time budgets Coordination with other departments Prepare Audit Plan ( see example –culmination of sections A & B above. –It is a requirement of ISA 300 – Para 8: “The auditor should develop and document an overall audit plan describing the expected scope and conduct of the audit” Team briefing Rohan Chambers: To come Rohan Chambers: To come

9 Control Authority: ISA 220 Quality Control for Audit Work–Para. 4 “The audit firm should implement quality control policies and procedures designed to ensure that all audits are conducted in accordance with ISAs or relevant national standards or practices.” Control at 2 levels: –At firm level –At individual level

10 Firm level 1.Professional Requirements 2.Skills and Competence 3.Assignment 4.Delegation 5.Consultation 6.Acceptance and Retention of Clients 7.Monitoring

11 Individual level Direction – involves informing assistants of their responsibilities and the objectives of the procedures they are to perform. Supervision – continuously Review – each assistant’s work needs to be reviewed –Review notes

12 The end