Hanrick Curran Audit Training - Risk Assessment - March 2013
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Hanrick Curran Audit Training - Risk Assessment - March 2013 Presentation Transcript

  • 1. AUDIT TRAININGAudit Plan, Risk Assessments, Analytical Review andSourcing Information9 April 2013
  • 2. DISCLAIMERThis document contains information in summary form and is therefore intendedfor general guidance only. It is not intended to be a substitute for detailedresearch or the exercise of professional judgement. It does not purport to becomprehensive or to render professional advice. The reader should not act onthe basis of any matter contained in this publication without first obtainingspecific professional advice.We believe that the statements made by us in this document are accurate but nowarranty of accuracy or reliability is given. Our conclusions are based oninterpretations of accounting standards and other relevant professionalpronouncements and legislation current as at the date of this document. Shouldthe interpretations, accounting standards, other relevant professionalpronouncements or legislation change, our conclusions may not be valid. We areunder no obligation to update the matters considered in this document after itspublication.© Hanrick Curran, March 2013All rights reserved Liability limited by a scheme approved under professional Standards Legislation
  • 3. ABOUT HANRICK CURRANOur client base is mainly located in SouthEast Queensland, but also extends toNorthern New South Wales, WesternQueensland, Sydney, Melbourne, Darwin, Townsville and Mackay as well as otherregional areas.We have a strong position with clients inPapua New Guinea and we also serve agrowing Asian business sector. While theseinternational connections may not be ofimmediate interest but we believe they areimportant in enabling us to effectively serveour clients. Hanrick Curran’s Client Base
  • 4. YOUR PRESENTERS – VIVEK CHOPRA CPA – MATTHEW GREEN CAContact details: matthew.green@hanrickcurran.com.au 0447 724 595 (07) 3218 3900 Twitter: @matthewjgreenca LinkedIn: http://au.linkedin.com/in/matthewjgreenca www.hanrickcurran.com.au
  • 5. AGENDA Audit plan Risk assessment Analytical review Sourcing Information Sample case studies
  • 6. OBJECTIVE What is an Audit Strategy? Audit team members should be comfortable in interpreting and preparing an audit plan. What areas should be covered in an Audit Plan How to perform an analytical review and determining unusual fluctuations and relationships. Ability to perform risk assessment procedures in order to obtain an understanding of the entity and its environment, including its internal control. From where to source information which will help the team members in audit planning and benchmarking.
  • 7. ASA 300 - PLANNING AN AUDIT OF A FINANCIAL REPORTASA 300.5 mandates that the engagement partner and other keymembers of the engagement team shall be involved in planning theaudit, including planning and participating in the discussion amongengagement team members.ASA 300.6 – Perform preliminary engagement activities such as clientcontinuance, compliance with ethical requirements (ASA 220) andestablishing the understanding of the terms of the engagement.ASA 300.7 - The auditor shall develop an overall audit strategy that’ssets the scope, timing and direction of the audit, and that guides thedevelopment of the audit plan.ASA 300.12 – An auditor shall include in the audit documentation anoverall audit strategy, the audit plan and any significant changes madeduring the audit engagement to the overall audit strategy and auditplan, and reasons for such changes.
  • 8. AUDIT STRATEGYASA 300.8In order to develop an audit strategy, the auditor shall: Define its scope and identify the characteristics of the engagement. Ascertain the reporting objectives of the engagement in order to plan the timing of the audit and nature of communication required Consider significant factors, in auditors professional judgment, which are significant in directing the team’s efforts. This could also be identifying significant risk areas and then deploying resources or experienced team members to those high risk areas or the involvement of an expert. Define its approach to the key components of the audit.Once the audit strategy has been established, an audit plan can be developedto address the various matters identified in the overall audit strategy. Theestablishment of the overall audit strategy and the detailed audit plan are notnecessarily discrete or a sequential process, but they are closely linked sincechanges in one may result in changes to the other.
  • 9. AUDIT PLANASA 300.A12The audit plan is more detailed than the overall audit strategy in that itincludes the nature, timing and extent of audit procedures to beperformed by engagement team members.An audit plan should contain the following: Background about the client Reporting requirements Any specific accounting policy Control environment of the client Fraud consideration Audit approach to be taken Materiality Sample selection basis Independence statement Risks identified during planning and audit procedures to be performed to mitigate those risks Further substantive procedures adopted for each financial statement areas Inherent risk assessment Timing of the audit and staffing Audit Budget
  • 10. AUDIT PLAN OVERVIEWThe audit plan acts as an overview of the audit, indicating: The major objectives of the audit The constraints within which the audit needs to be performed Risk considerations Materiality An estimate of the resources required to carry out the auditThe nature and extent of the planning activity will vary with: The size and complexity of the entity The auditor’s previous experience with the entity Changes in the circumstances that occur during the engagement
  • 11. RISK ASSESSMENTASA315.5 – the auditor shall perform risk assessment procedures toprovide a basis for the identification and assessment of risks of materialmisstatements at the financial report and assertion level for classes oftransactions, account balances and disclosures.Risk assessment procedures shall include: Enquiries of management and of others within the entity who may have information that is likely to assist in identifying the risks of material misstatement due to fraud or error Analytical procedures – WHY? Observation and inspection
  • 12. RISK ASSESSMENTIn order to assess the risk the auditor shall: Discuss amongst the engagement team the susceptibility of the entity’s financial report to material misstatement. Obtain an understanding of the relevant industry, regulatory and other external factors. Understand the nature of the entity including its operations, its governance structure, the types of investments the entity is making or is planning to make and the way the entity is structured and how is it financed. Obtain an understanding of internal control relevant to the audit. Ascertain the selection and application of accounting policy of the entity and whether it is appropriate for its business and consistent with the applicable financial reporting framework. Find out the objectives and strategies of the entity and its various business risks. The auditor should find out if the entity has a risk assessment process. Assess the likelihood, impact and occurrence of the risks and what effect this risk will have on the financial report and assertion levels.“Some risks may require special audit consideration.”
  • 13. ANALYTICAL REVIEW Substantive procedure Helps to identify unusual relationships and fluctuations. Helps to identify deviations from predicted amounts. Inconsistencies with other relevant information. Should be performed at interim and final stages of the audit.Analytical procedures include: Comparison with prior periods and anticipated results. Relationships between elements of financial information. Relationship between financial information and non financial information. For example sales and volume of good sold. Comparison with industry data can highlight unusual trends.Is making comparison to budgets an accurate way ofperforming analytical review?
  • 14. ANALYTICAL REVIEWCertain elements of financial accounting would be expected to conformto predictable patters, for example: Gross margins and sales Sales commission and sales Accounts receivable and sales Internal expense to borrowings Some more please……Why is it so important to perform analytical review at the finalstage of the audit?
  • 15. ANALYTICAL REVIEWSome ratios to keep in mind when performing analytical review are: Gross margin Net profit Asset turnover Return on total assets Current ratio Quick ratio Inventory turnover Debtors turnover Debt to equityAnalytical review should be a solid document which should add value toan audit file. It should enable the reviewer to understand the reasons forthe fluctuations in financial and non financial information.Refer to example.
  • 16. SOURCING INFORMATIONTeam members can source information from the following websites:www.aasb.gov.auwww.auasb.gov.auYou can browse a list of Industry Profiles for different countries inBusiness Source Complete. Also refer to Australian Chamber ofCommerce & Industry.Industry overviews are a ready made source of information. Oneexample of a source of these are the IBIS World Industry MarketResearch Reports.ATO Benchmarks for various industries:http://www.time4tax.com.au/ato_benchmarks_22.html
  • 17. SAMPLE CASE STUDIESLets discuss……
  • 18. Hanrick Currant. (07) 3218 3900f. (07) 3218 3901 Thank youLevel 11307 Queen StreetBrisbane Qld 4000GPO Box 2268Brisbane Qld 4001 www.hanrickcurran.com.au Topic Date