Thursday 20 June 2013

Audit Working Papers

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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Tuesday 18 June 2013

Audit Materiality

Below is good video on Audit Materiality

Assessing Inherent Risk

Below is a good video on Assessing Inherent Risk


Audit Risk Model

Below is a good video on the Audit Risk Model


Client Risk Profile


Below is a good video on Client Risk Profile


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.

 
           The auditor should plan the nature, timing, and extent of direction and supervision      
           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.
In order to ensure a high standard of performance, it is important that the auditor should prepare adequately for his work. Planning for an audit, just like every human endeavour, is essential for the smooth performance of the audit work and its successful completion. Planning ahead for an audit work will not only guarantee a valid audit opinion but will also help the auditor to ensure that:


 

·         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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