audit planning and documentation. - to enable the auditor to obtain sufficient appropriate evidence

Audit Planning and Documentation

- to enable the auditor to obtain sufficient appropriate evidence

- to enable the auditor to obtain suffi- cient appropriate evidence

- to enable the auditor to obtain suffi- cient appropriate evidence- to help keep audit costs reasonable

- to enable the auditor to obtain suffi- cient appropriate evidence- to help keep audit costs reasonable- to avoid misunderstandings with the client

obtaininformation

about client’s legalobligations

performpreliminaryanalytical

procedures

preplan

obtainbackgroundinformation

early brainstormingearly brainstormingabout the audit about the audit

preplan

- client acceptance issues

Whatpotential

client might theauditor turn

down?

early brainstormingearly brainstormingpreplan

- client lacking integrity- financially unstable client- client unable to pay audit fees

- client acceptance issues

Whatpotential

client might theauditor turn

down?

early brainstormingearly brainstormingpreplan

- Rules of Professional Conduct require the successor auditor to communicate

with the predecessor.

WHY?WHY?

- Rules of Professional Conduct require the successor auditor to communicate

with the predecessor

WHY?WHY?to facilitate the successor auditor’s

client acceptance decision

- Rules of Professional Conduct require the successor auditor to communicate with the predecessor- the client must give permission for the communication

- Rules of Professional Conduct require the successor auditor to communicate with the predecessor- the client must give permission for the communication- the successor is required to initiate the communication

- Rules of Professional Conduct require the successor auditor to communicate with the predecessor- the client must give permission for the communication- the successor is required to initiate the communication- the predecessor is required to respond

- client acceptance issues If a prospective client has not been audited before, the auditor may base client acceptance on discussions with:- lawyers- banks- other businesses

BANK

early brainstormingearly brainstormingpreplan

- client acceptance issues

- identify client’s reasons for an audit

WHY?WHY?

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit

WHY?WHY? The client’s motivation for the

audit is one of the major factors affecting audit risk.

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit

For a large business,For a large business,what is the what is the probableprobablereason for an audit?reason for an audit?

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit

For a large business, what is the For a large business, what is the probable probable reason for an audit?reason for an audit?

Companies subject to securities commission regulation are required to have annual audits.

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit

Because of Because of audit riskaudit risk, an auditor will, an auditor willtypically gather typically gather more evidencemore evidence for: for:

??

early brainstormingearly brainstormingpreplan

- publicly held clients- clients with extensive indebtedness- clients changing ownership- newly formed, rapidly growing businesses

Because of Because of audit riskaudit risk, an auditor will, an auditor willtypically gather typically gather more evidencemore evidence for: for:

- client acceptance issues - identify client’s reasons for an audit

early brainstormingearly brainstormingpreplan

What is an engage-ment letter and why

is it necessary?

- client acceptance issues - identify client’s reasons for an audit- obtain an engagement letter

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit- obtain an engagement letter

The intent is todocument terms of the

audit and minimizemisunderstandings.

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit- obtain an engagement letter

The letter iswritten by the auditor tothe client, then signed

by both.

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit - obtain an engagement letter

The morespecific, the better -

including:

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit - obtain an engagement letter

The morespecific, the better -

including: fees

schedules

use of clientpersonnel

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit - obtain an engagement letter

When should theletter be prepared

and signed?

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit- obtain an engagement letter

When should theletter be prepared

and signed?

in advance of any audit procedures

early brainstormingearly brainstormingpreplan

- client acceptance issues - identify client’s reasons for an audit- obtain an engagement letter- select audit team

Considerations?Considerations?

early brainstormingearly brainstormingpreplan

- select audit team

Considerations?Considerations?- training and overall experience

early brainstormingearly brainstormingpreplan

- select audit team

Considerations?Considerations?- training and overall experience- industry and client experience

early brainstormingearly brainstormingpreplan

- select audit team

Considerations?Considerations?- training and overall experience- industry and client experience- supervision

early brainstormingearly brainstormingpreplan

- select audit team

Considerations?Considerations?- training and overall experience- industry and client experience- supervision- need for specialists

early brainstormingearly brainstormingpreplan

preplan

obtain information about client’s legal obligations perform

preliminaryanalytical

procedures

obtainbackgroundinformation

obtainbackgroundinformation

Why should the auditorWhy should the auditorobtain backgroundobtain background

information?information?

- to identify the need for outside specialists

obtainbackgroundinformation

Why should the auditorWhy should the auditorobtain backgroundobtain background

information?information?

- to identify the need for outside specialists- to identify related parties

?

obtainbackgroundinformation

Why should the auditorWhy should the auditorobtain backgroundobtain background

information?information?

obtainbackgroundinformation

Why should the auditorWhy should the auditorobtain backgroundobtain background

information?information?

- affiliated company- principal owner- party that can influ- ence management

- to identify the need for outside specialists- to identify related parties

obtainbackgroundinformation

Why should the auditorWhy should the auditorobtain backgroundobtain background

information?information?- to identify the need for outside specialists- to identify related parties

GAAPrequires disclosure of

related partytransactions.

obtainbackgroundinformation

Why should the auditorWhy should the auditorobtain backgroundobtain background

information?information?

- to identify the need for outside specialists- to identify related parties

Whataudit procedures

may discloserelated parties?

obtainbackgroundinformation

Why should the auditorWhy should the auditorobtain backgroundobtain background

information?information?- to identify the need for outside specialists- to identify related parties

- inquire of management- review shareholder records for principal shareholders

GAAS requires an extensiveGAAS requires an extensiveknowledge of the client’sknowledge of the client’sbusiness, industry and business, industry and

operations.operations.

obtainbackgroundinformation

obtainbackgroundinformation

Why understand theWhy understand theclient’s business, client’s business,

industry or operations?industry or operations?

- to determine if any unique accounting requirements exist

Why understand theWhy understand theclient’s business, client’s business,

industry or operations?industry or operations?

obtainbackgroundinformation

- to determine if any unique accounting requirements exist- to identify industry risks for setting acceptable audit risk

Why understand theWhy understand theclient’s business, client’s business,

industry or operations?industry or operations?

obtainbackgroundinformation

- to determine if any unique accounting requirements exist- to identify industry risks for setting acceptable audit risk- to identify industry risks for setting inherent risk

Why understand theWhy understand theclient’s business, client’s business,

industry or operations?industry or operations?

obtainbackgroundinformation

- Also helps in:- determining materiality- understanding internal control- identifying sources and nature of available audit

evidence- understanding substance of transactions- assessing whether sufficient appropriate evidence

is available- assessing appropriateness of accounting policies- evaluating overall financial statement presentation

Why understand theWhy understand theclient’s business, client’s business,

industry or operations?industry or operations?

obtainbackgroundinformation

obtainbackgroundinformation

What are the auditor’s What are the auditor’s sources of industry sources of industry

information?information?

- prior auditors - firm industry experts- CICA research studies, audit technique studies and other publications- industry journals and other literature- discussions with management- plant and office tour- review of policies and procedures

What are the auditor’s What are the auditor’s sources of industry sources of industry

information?information?

obtainbackgroundinformation

Industry Industry diversitydiversity

is one reason is one reason why many why many auditorsauditors

specializespecialize..

obtainbackgroundinformation

Doe & Smith, publicaccountants

“We know banks. Banks know us.”

preplan

performpreliminaryanalytical

procedures

obtainbackgroundinformation

obtaininformation

aboutclient’s legal obligations

obtaininformation

aboutclient’s legal obligations

how?

- study articles of incorporation & bylaws

obtaininformation

aboutclient’s legal obligations

how?

Articles of Incorporation

- study articles of incorporation & bylaws- study minutes of board and share- holder meetings Minutes of

Board of DirectorsMeetings

Ace Company

obtaininformation

aboutclient’s legal obligations

how?

- study articles of incorporation & bylaws- study minutes of board and share- holder meetings- study existing contracts

obtaininformation

aboutclient’s legal obligations how?

...it’s a deal!!

Why is this part of audit planning?

obtaininformation

aboutclient’s legal obligations

Throughout the engage-ment, auditors will be

observing evidence thatmay relate to these items

and their disclosure.

Why is this part of audit planning?

obtaininformation

aboutclient’s legal obligations

preplan

performpreliminaryanalytical

procedures

obtainbackgroundinformation

obtaininformation

aboutclient’s legal obligations

What is thepurpose of preliminary

analyticalprocedures?

What is thepurpose of preliminary analytical

procedures?

- understanding the client’s industry- assessing going concern issues- indicating possible misstatements- reducing detailed tests

auditor records of:auditor records of:

proceduresapplied

proceduresapplied

testsperformed

auditor records of:auditor records of:

proceduresapplied

testsperformed

informationobtained

auditor records of:auditor records of:

proceduresapplied

informationobtained

conclusionsreached

testsperformed

auditor records of:auditor records of:

Their objective is to aid the auditor in providing reasonable assurance that an

adequate audit was conducted inaccordance with GAAS.

Working papers also provide:- a basis for planning the audit

Their objective is to aid the auditor in providing reasonable assurance that an

adequate audit was conducted inaccordance with GAAS.

January

Working papers also provide:- a basis for planning the audit- a record of the evidence accumulated and the results of tests

Their objective is to aid the auditor in providing reasonable assurance that an

adequate audit was conducted inaccordance with GAAS.

Ace Co.

Audit File

Working papers also provide:- a basis for planning the audit- a record of the evidence accumulated and the results of tests- data supporting the audit report

Their objective is to aid the auditor in providing reasonable assurance that an

adequate audit was conducted inaccordance with GAAS.

Working papers also provide:- a basis for planning the audit- a record of the evidence accumulated and the results of tests- data supporting the audit report- a basis for supervisor/partner review

Their objective is to aid the auditor in providing reasonable assurance that an

adequate audit was conducted inaccordance with GAAS.

Working papers includecurrent files andpermanent files.

?

PERMANENT

CONTRACTCONTRACT

INCLUDE:- copies of client documents of continu- ing importance (e.g., articles of incor- poration, bylaws, contracts)

Articles of Incorporation

INCLUDE:-copies of client documents of

continuing importance

- analyses from prior audits that have continuing importance (e.g., bond premium amortization, depreciation)

INCLUDE:-copies of client documents of

continuing importance - analyses from prior audits that have continuing importance - internal control information (flow- charts, descriptions of transaction cycles)

INCLUDE:-copies of client documents of

continuing importance- analyses from prior audits that have continuing importance - internal control information - results of prior audit analytical procedures

How does theprovincial CA

institutes’ Rules of Professional

Conduct apply?

Confidential Client InformationConfidential Client InformationA member in public practice shall not discloseany confidential client information without the

specific consent of the client, or when required by the courts of by the professional

accounting association...

During the course of an audit,auditors obtain information of a

confidential nature which isretained in the working papers.

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symbols of audit work completed

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