Below are good videos on audit working papers
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Blair Cook
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Amanda Love to Audit
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Thursday, 20 June 2013
Tuesday, 18 June 2013
Friday, 7 June 2013
Audit Preparatory Procedures
Effective execution of any audit work requires appropriate planning and
a well-designed audit programme. For effective audit planning and for designing
appropriate audit programme, the auditor should prepare himself before the
commencement of his audit work. For this purpose, the auditor should take the
following steps:
1. Review
issues raised in the previous audit which can affect the current audit;
2. Examine the
effects of changes in legislation and/or accounting practice which affect the
financial statement;
3. Discuss
with client’s personnel, changes in business activities and management and
review management accounts;
4. Identify
changes in the accounting system of the client;
5. Assess
staff requirement and composition and timetable;
6. Determine
the involvement of experts and component auditors;
7. Perform
risk assessment and set planning materiality;
8. Prepare
audit programme;
9. Determine
or calculate initial sample sizes;
10. Prepare
staff allocation and fee budget;
11. Discuss
audit timetable with client;
12. Consult
joint auditors on the efficient and effective execution of the audit.
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Direction, Supervision and Review
The nature, timing, and extent of the direction and
supervision of engagement team members and review of their work vary, depending
on many factors, including the following:
·
The size and complexity of the entity;
·
The area of the audit;
·
The assessed risks of material misstatement (for
example, an increase in the assessed risk of material misstatement for a given area
of the audit ordinarily requires a corresponding increase in the extent and
timeliness of direction and supervision of engagement team members and a more detailed
review of their work);
·
The capabilities and competence of the individual
team members performing the audit work.
If an audit is carried out entirely by the engagement partner, questions
of direction and supervision of engagement team members and review of their
work do not arise. In such cases, the engagement partner, having personally conducted
all aspects of the work, will be aware of all material issues.
Forming an objective view on the appropriateness of the judgments made
in the course of the audit can present practical problems when the same
individual also performs the entire audit. If particularly complex or unusual
issues are involved and the audit is performed by a sole practitioner, it may
be desirable to consult with other suitably experienced auditors or the
auditor's professional body.
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Changes to Planning Decisions During the Course of the Audit
As a result of unexpected events, changes in
conditions, or the audit evidence obtained from the results of audit
procedures, the auditor may need to modify the overall audit strategy and audit
plan and, thereby, the resulting planned nature, timing, and extent of further
audit procedures, based on the revised consideration of assessed risks. This
may be the case when information comes to the auditor's attention that differs
significantly from the information available when the auditor planned the audit
procedures. For example, audit evidence obtained through the performance of
substantive procedures may contradict the audit evidence obtained through tests
of controls.
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The Audit Plan
The audit plan is more detailed than the overall
audit strategy in that it includes the nature, timing, and extent of audit
procedures to be performed by engagement team members. Planning for these audit
procedures takes place over the course of the audit as the audit plan for the
engagement develops. For example, planning of the auditor's risk assessment
procedures occurs early in the audit process. However, planning the nature, timing,
and extent of specific further audit procedures depends on the outcome of those
risk assessment procedures. In addition, the auditor may begin the execution of
further audit procedures for some classes of transactions, account balances,
and disclosures before planning all remaining further audit procedures.
The auditor should develop an audit plan that
includes a description of the following:
a) The nature
and extent of planned risk assessment procedures,
b) The nature,
timing, and extent of planned further audit procedures at the relevant
assertion level,
c) Other planned audit procedures that are required to
be carried out so that the engagement complies with generally accepted auditing
Standards.
The auditor should update and change the overall audit
strategy and audit plan, as necessary, during the course of the audit.
of engagement team members and the review of their work.
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Thursday, 6 June 2013
The Overall Audit Strategy
The auditor
should establish an overall audit strategy that sets the scope, timing, and
direction of the audit and that guides the development of the audit plan.
In
establishing the overall audit strategy, the auditor should:
a)
identify the characteristics of the engagement that
define its scope;
b)
ascertain the reporting objectives of the
engagement in order to plan the timing of the audit and the nature of the
communications required;
c)
consider the factors that, in the auditor's
professional judgment, are significant in directing the engagement team's
efforts;
d)
consider the results of preliminary engagement
activities and, when applicable, whether knowledge gained on other engagements
performed by the engagement partner for the entity is relevant; and
e)
ascertain the nature, timing, and extent of
resources necessary to perform the engagement.
The process
of establishing the overall audit strategy assists the auditor to determine,
subject to the completion of the auditor's risk assessment procedures, such
matters as the following:
·
The resources to deploy for specific audit areas,
such as the use of appropriately experienced team members for high risk areas
or the involvement of specialists on complex matters;
·
The amount of resources to allocate to specific
audit areas, such as the number of team members assigned to observe the
inventory count at material locations, the extent of review of component
auditors' work in the case of group audits, or the audit budget (in hours) to
allocate to high risk areas;
·
When these resources are to be deployed, such as
whether at an interim audit stage or at key cut-off dates;
·
How such resources are managed, directed, and
supervised, such as when team briefing and debriefing meetings are expected to
be held, how the engagement partner and manager reviews are expected to take
place (for example, on site or off site), and whether to complete engagement
quality control reviews.
Once the overall audit strategy has been
established, an audit plan can be developed to address the various matters
identified in the overall audit strategy, taking into account the need to
achieve the audit objectives through the efficient use of the auditor's
resources. The establishment of the overall audit strategy and the detailed
audit plan are not necessarily discrete or sequential processes but are closely
interrelated because changes in one may result in consequential changes to the
other.
In audits of smaller entities, the entire audit may
be conducted by a very small audit team. Many audits of smaller entities
involve the 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 of, and communication between, team members is easier.
Establishing the overall audit strategy for the
audit of a smaller entity need not be a complex or time consuming exercise; it
varies according to the size and complexity of the entity, the complexity of
the audit, and the size of the engagement team. 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 in the current period, based on discussions with the owner-manager, can
serve as the documented audit strategy for the current audit engagement.
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Preliminary Engagement Activities
The auditor
should undertake the following activities at the beginning of the current audit
engagement:
a) Performing procedures required,
regarding the continuance of the client relationship and the specific audit
engagement;
b) Evaluating compliance with relevant ethical
requirements and;
c) Establishing an understanding of the
terms of the engagement.
The auditor's
consideration of client continuance and relevant ethical requirements,
including independence, occurs throughout the audit engagement as conditions
and changes in circumstances occur. Performing initial procedures on both
client continuance and evaluation of relevant ethical requirements (including
independence) at the beginning of the current audit engagement means that they
are completed prior to the performance of other significant activities for the
current audit engagement. For continuing audit engagements, such initial
procedures often begin shortly after (or in connection with) the completion of
the previous audit.
Performing
the preliminary engagement activities, which are specified in above, at the
beginning of the current audit engagement assists the auditor in identifying
and evaluating events or circumstances that may adversely affect the auditor's
ability to plan and perform the audit engagement.
Performing
these preliminary engagement activities enables the auditor to plan an audit
engagement for which, for example:
·
the
auditor maintains the necessary independence and ability to perform the
engagement.
·
the
auditor has no issues with management integrity that may affect the auditor's
willingness to continue the engagement.
·
the
auditor has no misunderstanding with the entity about the terms of the
engagement.
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Planning an Audit
1. Aims of Planning
Audit like any other human endeavor have to be planned. The
objective of the auditor is to plan the audit so that it will be performed in
an effective manner.
·
The audit
objective is established and achieved;
·
The audit is
properly controlled and adequately directed at all stages;
·
High risk and
critical areas of the engagement are not omitted but that adequate attention is
focused on these areas; and
·
The work is
completed economically and expeditiously, hence, savings on audit resources.
2. Timing and Role of Planning
an Audit
Planning an audit involves establishing the overall audit strategy for the
engagement and developing an audit plan. Adequate planning benefits the audit
of financial statements in several ways, including the following:
a) Helping the auditor identify and devote appropriate attention to important
areas of the audit;
b) Helping the auditor identify and resolve potential problems on a timely
basis;
c) Helping the auditor properly organize and manage the audit engagement so
that it is performed in an effective and efficient manner;
d) Assisting in the selection of engagement team members with appropriate levels
of capabilities and competence to respond to anticipated risks and allocating
team member responsibilities;
e) Facilitating the direction and supervision of engagement team members
and the review of their work;
f)
Assisting, when
applicable, in coordination of work done by auditors of components and
specialists.
The nature
and extent of planning activities will vary according to the size and
complexity of the entity, the key engagement team members' previous experience
with the entity, and changes in circumstances that occur during the audit
engagement.
Planning is
not a discrete phase of an audit but rather a continual and iterative process
that often begins shortly after (or in connection with) the completion of the
previous audit and continues until the completion of the current audit
engagement. Planning, however, includes consideration of the timing of certain
activities and audit procedures that need to be completed prior to the
performance of further audit procedures. For example, planning includes the
need to consider, prior to the auditor's identification and assessment of the risks
of material misstatement, such matters as the following:
·
The analytical procedures to be applied as risk
assessment procedures
·
A general understanding of the legal and regulatory
framework applicable to the entity and how the entity is complying with that framework
·
The determination of materiality
·
The involvement of specialists
·
The performance of other risk assessment procedures
The auditor
may decide to discuss elements of planning with the entity's management to
facilitate the conduct and management of the audit engagement (for example, to
coordinate some of the planned audit procedures with the work of the entity's
personnel). Although these discussions often occur, the overall audit strategy
and the audit plan remain the auditor's responsibility.
When
discussing matters included in the overall audit strategy or audit plan, care
is required in order not to compromise the effectiveness of the audit. For example,
discussing the nature and timing of detailed audit procedures with management
may compromise the effectiveness of the audit by making the audit procedures
too predictable.
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