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AUDIT PLANNING AND DOCUMENTATION

AUDIT PLANNING AND DOCUMENTATION. 8. AN AUDITOR WHO DOES NOT UNDERSTAND A CLIENT’S BUSINESS TAKES A GREAT RISK . Audit Planning. Need an effective and efficient audit plan - We need sufficient appropriate audit evidence 2. Under-audit - see you in court

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AUDIT PLANNING AND DOCUMENTATION

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  1. AUDIT PLANNING AND DOCUMENTATION 8 AN AUDITOR WHO DOES NOT UNDERSTAND A CLIENT’S BUSINESS TAKES A GREAT RISK

  2. Audit Planning • Need an effective and efficient audit plan • -We need sufficient appropriate audit evidence • 2. Under-audit - see you in court • Over-audit - lose clients to competitors • -Keep audit costs reasonable

  3. Planning The work is to be adequately planned, and assistants, if any, are to be properly supervised.

  4. Planning an Audit and Designing an Audit Approach Accept client and perform initial audit planning. Understand the client’s business and industry. Assess client business risk. Perform preliminary analytical procedures.

  5. Planning an Audit and Designing an Audit Approach Set materiality and assess acceptable audit risk and inherent risk. Understand internal control and assess control risk. Gather information to assess fraud risks. Develop overall audit plan and audit program.

  6. Preplanning • Do we want this client? - Are we independent? - Are we technically competent? - Is client reputable? • Who will use financial statements? Why does client want an audit?

  7. Understanding with Client • Must obtain and document understanding (SAS #83) • Written engagement letter required starting in 2008* • - Timing • - Fees • - Client assistance • - Other services • - Limits of audit • *SAS 108 requires establishment of understanding with client through written communication • Through use of engagement letter

  8. Communication With Predecessor Required by SAS #84 Purpose is to assess whether to accept client Successor Initiates predecessor needs client permission to release information

  9. Successor - Predecessor Communication • Usually review prior auditor working papers • - Determine whether problems exist • - Support beginning asset balances (Why?)

  10. ANALYTICAL PROCEDURES Analytical procedures used in planning the audit should focus on: 1. Material weaknesses in internal control. 2. Predictability of financial data from individual transactions. 3. The various assertions that are embodied in the financial statements. 4. Areas that may represent specific risks relevant to the audit.

  11. Identify Related Parties • Concern is that they areadequately disclosed • By nature, are not arm’s length

  12. When auditing related party transactions, an auditor places primary emphasis on: • Confirming the existence of the related parties. • Verifying the valuation of the related parties. • Evaluating the disclosure of the related party transactions. • Ascertaining the rights and obligations of the related parties.

  13. Specialists • Used to address complex issues where auditor is not qualified • May be hired by client or auditor • Auditor should evaluate qualifications and relationship • with client • May refer to specialist in audit report only • when opinion is qualified or explanatory paragraph • added based on specialist’s report

  14. SUMMARY OF THE PURPOSES OF AUDIT PLANNING A MAJOR PURPOSE IS TO PROVIDE INFORMATION TO AID THE AUDITOR IN ASSESSING ACCEPTABLE AUDIT RISK AND INHERENT RISK.

  15. Working Papers AKA Audit Documentation Purposes of Working Papers Ownership of Working Papers Confidentiality of Working Papers Contents and Organization Permanent Files Current Files

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