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For audit practice problem, Exercises of Auditing

Notre Dame University (NDU)Auditing

Audit prablem wiht answer guys for preparation exam

Typology: Exercises

2019/2020

Uploaded on 09/11/2020

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COURSE: Fundamentals of Auditing and Assurance Services
OBJECTIVES:
The Financial Statements Audit -Client Acceptance, Audit Planning, Supervision and Monitoring
Overview of the Audit Process
Pre-Engagement Procedures
DISCUSSION:
OVERVIEW OF THE AUDIT PROCESS
Pre-engagement Procedures – are activities performed to determine whether the auditor is qualified to
handle the engagement and to evaluate whether the client’s financial statement are auditable or not.
Audit Planning – the auditors obtains understanding of the client entity and its environment to know the
transactions and events affecting the financial statements.
Considering Internal Control – the auditor considers the entity’s internal control because the condition
of the entity’s internal control directly affects the reliability of the financial statements.
Performing Substantive Procedures – using the information gathered in audit planning and
consideration of internal control the auditor performs substantive procedures to determine whether the
entity’s financial statements are presented fairly in accordance with PFRSs.
Completing the Audit – auditors perform a series of procedures near the end of the audit, these
procedures include identifying subsequent events that may affect the financial statement, identifying
matter such as litigation, claims and assessment, obtaining written management representation and
performing wrap up procedures.
Issuing an auditor’s report – the report is the medium through which the auditor expresses his opinion
or disclaims his opinion. The auditor’s opinion enhances the credibility of financial statements by
providing a high, but not absolute level of assurance.
PRE
-
ENGAGEMENT PROCEDURES
AUDIT PLANNING
PERFORMING SUBSTANTIVE PROCEDURES
COMPLETING THE AUDIT
CONSIDERING INTERNAL CONTROL
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COURSE: Fundamentals of Auditing and Assurance Services OBJECTIVES: The Financial Statements Audit -Client Acceptance, Audit Planning, Supervision and Monitoring Overview of the Audit Process Pre-Engagement Procedures DISCUSSION: OVERVIEW OF THE AUDIT PROCESS Pre-engagement Procedures – are activities performed to determine whether the auditor is qualified to handle the engagement and to evaluate whether the client’s financial statement are auditable or not. Audit Planning – the auditors obtains understanding of the client entity and its environment to know the transactions and events affecting the financial statements. Considering Internal Control – the auditor considers the entity’s internal control because the condition of the entity’s internal control directly affects the reliability of the financial statements. Performing Substantive Procedures – using the information gathered in audit planning and consideration of internal control the auditor performs substantive procedures to determine whether the entity’s financial statements are presented fairly in accordance with PFRSs. Completing the Audit – auditors perform a series of procedures near the end of the audit, these procedures include identifying subsequent events that may affect the financial statement, identifying matter such as litigation, claims and assessment, obtaining written management representation and performing wrap up procedures. Issuing an auditor’s report – the report is the medium through which the auditor expresses his opinion or disclaims his opinion. The auditor’s opinion enhances the credibility of financial statements by providing a high, but not absolute level of assurance.

PRE-ENGAGEMENT PROCEDURES

AUDIT PLANNING

PERFORMING SUBSTANTIVE PROCEDURES

COMPLETING THE AUDIT

ISSUING AN AUDITOR’S REPORT

CONSIDERING INTERNAL CONTROL

PRE ENGAGEMENT PROCEDURES

Pre-engagement procedures are performed to assist the auditor in deciding whether to accept or reject an audit engagement. In making this decision, the firm should consider its competence, its independence, its ability to serve the client properly, and the integrity of the prospective client’s management. Broadly, the procedures performed at this stage of the audit are called preliminary planning activities and may involve: a. Establishing whether the preconditions for an audit are present. b. Confirming that there is a common understanding between the auditor and management and, where appropriate, those charged with governance of the terms of the audit engagement. c. Performing procedures regarding the continuance of the client relationship and the specific audit engagements in accordance with PSQC 1. d. Evaluating compliance with ethical requirements, including independence, in accordance with the Code of Ethics for Professional Accountants. In order to establish whether the preconditions for an audit are present, the auditor shall: a. Determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable. b. Obtain the agreement of management that it acknowledges and understands its responsibility: i. For the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation. ii. For such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. iii. To provide the auditor with access to all information of which management is aware that is relevant to the preparation of the financial statement such as records, documentation and other matter; additional information that the auditor may request from the management for the purpose of the audit; and unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence. Predecessor Auditor – refers to the auditor who was previously the auditor of an entity and who has been replaced by an incoming auditor. Successor Auditor – refers to the auditor who is considering to accept an engagement to audit financial statements or an auditor who has accepted such an engagement. Before a new engagement is accepted by a successor auditor, information must be sought from the previous auditor. Inquiry of the predecessor auditor is a necessary procedure because the predecessor auditor may be able to provide information that will assist the successor auditor in determining whether to accept the engagement. The communication should be done, however, only after an engagement has been offered. It may be written or oral. It is the successor auditor’s responsibility to initiate the contact between him and the predecessor auditor. The successor auditor, however, must first seek permission from the prospective client to make inquiry of the predecessor auditor.

f. The arrangement of management to make available to the auditor draft financial statements and any accompanying other information in time to allow the auditor to complete the audit in accordance with the proposed timeline. g. The arrangement of management to inform the auditor of facts that may affect the financial statements, of which management may become aware during the period from the date of the auditor’s report to the date the financial statements are issued. h. The basis on which fees are computed and any billing arrangements. i. A request for management to acknowledgement receipt of the audit engagement letter and to agree to the terms of the engagement outlined therein. When relevant, an audit engagement letter could also include the following matters: a. Arrangements concerning the involvement of other auditors and experts in some aspect of the audit. b. Arrangements concerning the involvement of internal auditors and other staff of the entity. c. Arrangements to be made with the predecessor auditor, if any, in the case of an initial audit. d. Any restriction of the auditor’s liability when such possibility exists. e. A reference to any further agreements between the auditor and the entity. f. Any obligations to provide audit working papers to other parties. What are the factors that may cause an auditor to send separate audit engagement letters every audit period? The auditor may not send a new engagement letter for each period of the audit. However, the following factors may cause the auditor to send a new letter each audit period: a. Any indication that the client misunderstands the objective and scope of the audit. b. Any revised or special terms of the engagement. c. A recent change of senior management. d. A significant change in ownership e. A significant change in nature or size of the entity’s business. f. A change in legal or regulatory requirements. g. A change in the financial reporting framework adopted in the preparation of the financial statements. h. A change in other reporting requirements. What are some of the conditions that may lead to a justifiable change in the terms of an audit engagement? A request may be made by the client entity for the auditor to change the terms of the audit engagement. The following are considered justifiable reasons for a client’s request for a change in engagement: a. A change in circumstances that affects the need for the service. b. A misunderstanding as to the nature of an audit as originally requested. These are the circumstances that are considered unreasonable basis in requesting a change in the terms of an audit engagement. A request for a change in engagement would not be considered reasonable if:

a. It appeared that the change relates to information that is incorrect, incomplete or otherwise unsatisfactory. b. There is restriction on the scope of the engagement, whether imposed by management or caused by circumstances.