AUDIT PLANNING
Planning
Planning ensures that the risk of performing a poor quality audit and ultimately
giving an inappropriate audit opinion is reduced to an acceptable level
Professional judgement- The application of relevant raining knowledge and
experience in making informed decisions about the courses of action that are
appropriate in the circumstances of the audit engagement
Elements of Planning
1. Preliminary Engagement Activities
Perform procedures regarding the continuance of the client engagement
Evaluating compliance with ethical requirements
Ensure there are no misunderstandings with the client
2. Audit Strategy
Establish overall audit strategy
Develop an audit plan
Start to carry out audit procedures
Interim and Final Audit
The interim audit will normally focus on documenting systems evaluating
controls, some tests of details. This takes place in during the accounting period
to reduce pressure on the final audit
The final audit focuses on statement of financial position areas, finalization of
the financial statements and the audit report. This is carried out towards and
after the accounting year
1. If the controls tested at the interim stage provided evidence that control
risk is low, fewer substantive procedures can be performed
2. If substantive procedures were performed at the interim stage, fewer
procedures will be required at the final audit in general
3. As fewer procedures are being performed, the final audit will require
less time to perform
4. The auditors report can be signed closer to the year end resulting in
more timely reporting to shareholders
5. If the interim audit identified areas of increased risk fir example controls
were found not to be working effectively, increased substantive
procedures will be required at the final audit
FRAUD (Imp Qs)
Two types of misstatements deriving from fraud relevant to the auditor
1. Fraudulent financial reporting
2. Misappropriation of assets
Auditors responsibilities
1. Auditor is required to identify and assess the risks of material
misstatement of the financial statements due to fraud
2. They need to obtain sufficient appropriate audit evidence regarding the
assessed risk of material misstatement due to fraud through designing
and implementing appropriate responses
3. Auditor is responsible for maintaining professional skepticism
throughout the audit, considering the potential for management
override of controls and recognizing the fact that audit procedures
which are effective in detecting error may not be effective in detecting
fraud
4. To ensure that the whole engagement ream is aware of the risks and
responsibilities for fraud and error, ISA 240 require that a discussion is
held within the team
Risk Assessment
1. Engagement teams should discuss the risk of fraud
2. Consider the results of control test and analytical procedures
3. Enquire of client how they assess and respond to fraud risk
4. Enquire if client is aware of actual or suspected fraud
5. Consider incentives to commit fraud eg performance related bonuses
Reporting Fraud
1. If the auditor identifies a fraud they must communicate the matter on a
timely basis to the appropriate level of management
2. If the suspected fraud involves management the auditor must
communicate the matter to those charged with governance
3. If the auditor has doubts about the integrity of those charged with
governance they should seek legal advice regarding an appropriate
course of action
4. Whilst the auditor does have an ethical duty to maintain confidentiality,
it is likely that any legal responsibility will take precedence. In these
circumstances it is advisable to seek legal advice
5. If the fraud has a material impact on the financial statements the audit
opinion will be modified
ISA 250 Law and Regulations and NOCLAR (Non Compliance with Laws and
Regulations)
1. Obtain an understanding of the legal and regulatory framework
governing the client
2. Enquire with management about compliance and inspect licenses and
other documents
3. Perform procedures to identify instances of non compliance which may
affect the FS eg unrecorded fines and provision
4. Obtain written representation from management that hey have
informed the auditor of all instances of non compliance
5. If non compliance is identified report to management and those charged
with governance
6. Consider whether non compliance was deliberate and casts doubt over
management integrity
7. NOCLAR – Respond, communicate and document identified or suspected
non compliance
ISA 220 Qualiity Control of Audit
Policies and procedures should be established which address
1. Leadership responsibilities for quality within the firm: the engagement
partner takes overall responsibility for the overall quality of the
engagement
2. Relevant Ethical requirements: the firm should ensure compliance with
ACCA code of ethics
3. Acceptance and Continuance of client releationships and specific
engagments: the firm should ensure only clients and work of an
acceptable level of risk are accepted eg integrity of client , competence
and ethics of audit team
4. Human resources: The engagement partner should ensure that the
engagement team ollectively have the competence and capabilities to
perform the audit in accordance with professional standars
5. Engagement Perfomance: Engagement performance composes direction
supervison and review of the engagement
6. Monitoring- Quality control must be monitored to ensure they are
relevant adequate and operating effectively
The engagement partner takes overall responsibility for the overall quality of
engagement including the direction supervision and performance of the
engagement
An engagement quality control reviewer must be assigned for listed entities
and high risk engagements focusing on significant matters and areas involving
significant judgenent
Pre issuance – Hot review by engagement partner
Post issuance – Cold review by key partner
ISA 230 Audit Documentation
Documentation means the material (working papers) prepared by or for or
obtained and retained by the auditor in connection with the performance of
the audit. Such material may be in the form of paper or electronic media
The working papers must be sufficiently complete and detailed to provide an
overall understanding of the audit
In particular, the working papers should record the auditors reasoning on all
significant matters which require the exercise of judgement and the auditors
conclusions thereon
Should be retained for 5 years
Working papers are split into two files
1. Permanent file- Matters of continuing interest eg loan agreements , title
deeds
2. Current file – Matters of this years interest eg bank letter result of audit
test
Benefits of Documentation
1. Provides evidence of auditors basis of conclusion
2. Provides evidence the audit was planned and performed in accordance
with ISAs
3. Assists with direction supervision and review of work
4. Enables the engagement team to be accountable for its work
5. Retains a record of matters of continuing significance for future audits
