Audit Planning 2-Fundamentals of Auditing-Lecture Notes, Study notes of Auditing

Download Audit Planning 2-Fundamentals of Auditing-Lecture Notes and more Study notes Auditing in PDF only on Docsity! Lesson 43 AUDIT PLANNING (Establishing Overall Audit Strategy) Audits of Small Entities In audits of small entities, the entire audit may be conducted by a very small audit team. Many audits of small entities involve the audit engagement partner (who may be a sole practitioner) working with one engagement team member (or without any engagement team members). With a smaller team, coordination and communication between team members are easier. Establishing the overall audit strategy for the audit of a small entity need not be a complex or time-consuming exercise; it varies according to the size of the entity and the complexity of the audit. For example, a brief memorandum prepared at the completion of the previous audit, based on a review of the working papers and highlighting issues identified in the audit just completed, updated and changed in the current period based on discussions with the owner-manager, can serve as the basis for planning the current audit engagement. Communications with those charged with Governance and Management The auditor may discuss elements of planning with those charged with governance and the entity’s management. These discussions may be a part of overall communications required to be made to those charged with governance of the entity or may be made to improve the effectiveness and efficiency of the audit. Discussions with those charged with governance ordinarily include  The overall audit strategy and timing of the audit, including any limitations thereon, or any additional requirements. When discussions of matters included in the overall audit strategy or audit plan occur, care is required in order to not compromise the effectiveness of the audit. For example, the auditor considers whether discussing the nature and timing of detailed audit procedures with management compromises the effectiveness of the audit by making the audit procedures too predictable. Additional Considerations in Initial Audit Engagements The auditor should perform the following activities prior to starting an initial audit: (a) Perform procedures regarding the acceptance of the client relationship and the specific audit engagement. (b) Communicate with the previous auditor, where there has been a change of auditors, in compliance with relevant ethical requirements. For initial audits, additional matters the auditor may consider in developing the overall audit strategy and audit plan include the following: Unless prohibited by law or regulation, an arrangement to be made with the previous auditor for example to review the previous auditor’s working papers. Any major issues discussed with management in connection with the initial selection as auditors, the communication of these matters to those charged with governance and how these matters affect the overall audit strategy and audit plan. The planned audit procedures to obtain sufficient appropriate audit evidence regarding opening balances. The assignment of firm personnel with appropriate levels of capabilities and competence to respond to anticipated significant risks. Other procedures required by the firm’s system of quality control for initial audit engagements (for example, the firm’s system of quality control may require the involvement of another partner or senior individual to review the overall audit strategy prior to commencing significant audit procedures or to review reports prior to their issuance). Examples of Matters the Auditor May Consider In Establishing the Overall Audit Strategy Following are the examples of matters the auditor may consider in establishing the overall audit strategy: docsity.com 1. Scope of the audit engagement 2. Reporting objectives 3. Direction of the audit 1. Scope of the Audit Engagement The auditor may consider the following matters when establishing the scope of the audit engagement:  The financial reporting framework on which the financial information to be audited has been prepared, including any need for reconciliations to another financial reporting framework.  Industry-specific reporting requirements such as reports mandated by industry regulators.  The expected audit coverage, including the number and locations of components to be included.  The nature of the control relationships between a parent and its components that determine how the group is to be consolidated.  The extent to which components are audited by other auditors.  The nature of the business segments to be audited, including the need for specialized knowledge.  The reporting currency to be used, including any need for currency translation for the financial information audited.  The need for a statutory audit of standalone financial statements in addition to an audit for consolidation purposes.  The availability of the work of internal auditors and the extent of the auditor’s potential reliance on such work.  The entity’s use of service organizations and how the auditor may obtain evidence concerning the design or operation of controls performed by them.  The expected use of audit evidence obtained in prior audits, for example, audit evidence related to risk assessment procedures and tests of controls.  The effect of information technology on the audit procedures, including the availability of data and the expected use of computer-assisted audit techniques.  The coordination of the expected coverage and timing of the audit work with any reviews of interim financial information and the effect on the audit of the information obtained during such reviews.  The discussion of matters that may affect the audit with firm personnel responsible for performing other services to the entity.  The availability of client personnel and data. 2. Reporting objectives, timing of the audit and communications required The auditor may consider the following matters when ascertaining the reporting objectives of the engagement, the timing of the audit and the nature of communications required:  The entity’s timetable for reporting, such as at interim and final stages.  The organization of meetings with management and those charged with governance to discuss the nature, extent and timing of the audit work.  The discussion with management and those charged with governance regarding the expected type and timing of reports to be issued and other communications, both written and oral, including the auditor’s report, management letters and communications to those charged with governance.  The discussion with management regarding the expected communications on the status of audit work throughout the engagement and the expected deliverables resulting from the audit procedures.  Communication with auditors of components regarding the expected types and timing of reports to be issued and other communications in connection with the audit of components.  The expected nature and timing of communications among engagement team members, including the nature and timing of team meetings and timing of the review of work performed. docsity.com