Audit Accepance & Planning

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This 1 Hour Online CPD Course delivered by Des O’Neill of OmniPro examines the Audit Acceptance & Planning process that should be followed by all Auditors. Des provides practical advice and examples to ensure an efficient and compliant Audit.

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Audit Accepance & Planning

  1. 1. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. In Association with:- Online CPD for Accountants & Professional Advisors Audit Acceptance & Planning Presenter: Des O’Neill CPA; A.C.I.S; ACCA CPDStore.com Unit 3, South Court, Block D, Iveagh Court, Wexford Road Business Park, 5 – 8 Harcourt Road, Carlow. Dublin 2. 059 9183888 01 4110000 www.OmniPro.ie www.CPDStore.com
  2. 2. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Audit Acceptance and Planning Contents Page Audit Acceptance and Planning Presentation 1 Irish Audit Resource List 2011 26 Practice Note 26 Revised December 2009 29 Audit Planning Memorandum 68 Overall Materiality Calculation 101 Fraud Checklist 102
  3. 3. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. The Audit Overview 1. Accept the audit and comply with the ethical standards 2. Plan our approach identifying risk areas but focussing on our overall objective to form an opinion. 3. Set overall strategy responding to assessed risks 4. Identify risks by gaining an understanding of the entity 5. Assess possibility of fraud 6. Devise and set out testing to achieve our objectives responding to risks in accordance with ISAs The Audit Overview 7. Do the testing and gather the evidence based on our plan 8. Continually ensuring that quality control procedures are being applied and complied with 9. Pay specific attention to areas of risk and perform specific additional testing required to enable us form overall opinion in this area 10. Reach conclusions based on testing done and evidence gathered and form an opinion 11. Issue an audit report OmniPro Education & Training 1 of 105
  4. 4. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Accepting The Audit Engagement • Quality Control for Audits – ISA 220 – ISQC 1 • Independence – Code of Ethics Accepting The Audit Engagement New Audit Client – Client information and background – Source of client – Professional clearance – Previous audit reports – Directors’ responsibilities – Anti Money Laundering – Company Search – Letter of Engagement ISA 220 – Quality Control for an Audit of Financial Statements • The auditor must implement quality control procedures at engagement level that provide the auditor with reasonable assurance that • The audit complies with professional standards and applicable legal and regulatory requirements • The audit report issued is appropriate OmniPro Education & Training 2 of 105
  5. 5. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 220 – Quality Control for an Audit of Financial Statements • Responsibilities or firm personnel in relation to quality control for audits • In conjunction with Ethical standards • ISQC1 • Firm must establish a system of quality control designed to provide with assurance – Firm and personnel complies with professional standards and regulatory and legal requirements – Audit reports issued are appropriate ISA 220 – Quality Control for an Audit of Financial Statements • Engagement teams • Implement quality control procedures • Provide firm with relevant information to ensure system of quality control works • Rely on the firm’s systems unless otherwise advised ISA 220 – Quality Control for an Audit of Financial Statements • Establish leadership responsibilities for quality on audits • Engagement partner responsible for overall leadership in relation to ensuring quality of the audit • Ethical considerations are considered and complied with • Parts A&B of IFAC Code of Ethics – Integrity, objectivity, professional competence and due care, confidentiality, professional behaviour, independence OmniPro Education & Training 3 of 105
  6. 6. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 220 – Quality Control for an Audit of Financial Statements • Partner evaluates and observes ethical compliance and independence of team through • Obtaining information and evaluating circumstances and relationships through formal and informal enquiry • Evaluating information in relation to confirmed breaches • Taking appropriate action to eliminate threats and safeguards ISA 220 – Quality Control for an Audit of Financial Statements • Acceptance and continuance of the audit engagement – Integrity of business owners – Competent audit team – Ethical considerations met – Significant matters arising in current or previous audits – Understanding and knowledge of the client – Internal quality control procedures ISA 220 – Quality Control for an Audit of Financial Statements • Assignment of Engagement Teams • Understanding & practical experience through partaking in similar audits and appropriate training and participation • Understanding of professional standards & regulatory requirements • Technical knowledge and expertise • Knowledge of sector • Ability to apply professional judgement • Understanding of firm’s quality control policies OmniPro Education & Training 4 of 105
  7. 7. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 220 – Quality Control for an Audit of Financial Statements • Engagement partner takes responsibility for direction, supervision and performance of the audit • Before forming and issuing opinion has sufficient appropriate audit evidence been obtained • Have the audit team undertaken consultation where appropriate ISA 220 – Quality Control for an Audit of Financial Statements • Engagement Quality Control Review • Matters of significant judgement • Areas of risk • Corrected and uncorrected misstatements • Audit findings letters • Listed entities and others deemed appropriate • Quality control reviewer appointed • Discuss issues as they arise • Not date the auditors report until quality control review completed ISA 220 – Quality Control for an Audit of Financial Statements • Documentation required • Issues identified – Compliance – Ethical requirements • Conclusions on issues identified • Conclusions regarding acceptance and continuance • Nature and scope of and conclusions relating to consultations undertaken during the course of the audit engagement • Engagement quality control reviewer commentary and outcomes and responses OmniPro Education & Training 5 of 105
  8. 8. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Common Potential Ethical Threats • Business, personal, family relationships • Long association with the audit engagement • Fee dependency • Providing of non audit services Potential Ethical Threats • Self interest threat • Self review threat • Management threat • Advocacy threat • Familiarity threat • Intimidation threat Potential Safeguards Against Ethical and Independence Threats • Independent external quality control review • External review of the significant subjective audit issues before audit report is signed off. • Involving an additional partner not involved on the audit engagement to review the work done by the audit partner and to advise as necessary (in the case of practices with one partner this could involve a reciprocal arrangement with a partner from another audit firm). • Consultation on subjective matters with an independent external third party (eg partner under reciprocal arrangement, expert) or with the Institute before the audit report is signed off. OmniPro Education & Training 6 of 105
  9. 9. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 300 – Planning an Audit of Financial Statements • The auditor should plan the audit so that the engagement will be performed in an effective manner • Involvement of key engagement team members – Discussion among engagement team • Preliminary Engagement Activities – Continuance and Acceptance process ISA 300 – Planning an Audit of Financial Statements • Establish overall strategy for the audit • Scope of the engagement • Reporting objectives • Timing • Deadlines • Consider all important factors • That will have an impact on the direction of the audit and the approach taken ISA 300 – Planning an Audit of Financial Statements • The Audit Plan • Developed in order to reduce audit risk to an acceptable low level • Detailed document • Nature • Timing • Extent of audit procedures • Risk and assertion level responses • Updated as engagement progresses OmniPro Education & Training 7 of 105
  10. 10. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 300 – Planning an Audit of Financial Statements • Documentation required • Overall audit strategy • Audit plan • Any significant changes made during the audit to strategy and specific plan • Initial Engagements – Acceptance procedures – Communication with previous auditor ISA 300 – Planning an Audit of Financial Statements • Benefits of practical planning • Devote appropriate attention to important areas of the audit • Identify and resolve issues on a timely basis • Organise and manage the audit engagement • Facilitate selection, direction and supervision of team members ISA 300 – Planning an Audit of Financial Statements • ISA 240 – Auditors responsibility to consider fraud in the financial statements • ISA 250 – Consideration of Laws and Regulations • ISA 260 – Communication with those charged with Governance • ISA 315 – Obtaining and Understanding of the entity and assessing the risks of material misstatement • ISA 320 – Audit Materiality • ISA 330 – The Auditors response to identified risks • ISA 520 – Analytical Procedures OmniPro Education & Training 8 of 105
  11. 11. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 300 – Planning an Audit of Financial Statements • Considerations Specific to Smaller Entities • Establishing the overall strategy need not be a complex or time consuming exercise • A memorandum • prepared based on review of previous working papers • highlighting issues identified, • updated in the current period • based on discussions with the owner • once it addresses the technical requirements ISA 300 – Planning an Audit of Financial Statements • Considerations Specific to Smaller Entities • Sole practitioners significant involvement • External consultation with suitably qualified auditors • Or professional body ISA 300 – Planning an Audit of Financial Statements • Specific considerations to smaller entities • Standard audit programmes or checklists may be used • On the assumption of few relevant control activities • Provided they are tailored to the entity’s circumstances OmniPro Education & Training 9 of 105
  12. 12. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 240 - The Auditors Responsibilities Relating to Fraud in an Audit of Financial Statements • Auditors Objectives • Identify and assess the risks of material misstatement due to fraud • Obtain sufficient appropriate audit evidence by designing and implementing appropriate responses • Respond to suspected fraud identified Professional Scepticism • To be maintained throughout the audit • Irrespective of past experiences • Honesty and integrity of management • Previous experience contributes to understanding of the entity • Unless auditor has reason to believe to the contrary the auditor may accept documents as genuine • A questioning mind The Fraud Detection Process • Discussion among the team • Risk assessment procedures – Enquiries of management – Enquiries of staff – financial reporting and non financial at all levels – The process and system for detecting fraud – The communication process in relation to fraud – Those charged with governance – Unusual or unexpected relationships – Evaluation of fraud risk factors OmniPro Education & Training 10 of 105
  13. 13. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Using ISA 240 - Fraud • What are we looking for when we are assessing Fraud Risk Factors? – Appendix 1 ISA 240 • What audit procedures can we implement to address the assessed Fraud Risks Factors? – Appendix 2 ISA 240 • What Circumstances Indicate a Possibility of Fraud? – Appendix 3 ISA 240 ISA 240 • Written representations – management and those charged with governance – Acknowledge responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud – Disclose to auditor result of managements assessment of risk that FS have been materially misstated as a result of fraud ISA 240 • Written representations • Knowledge of fraud or suspected fraud – Management – Employees who have significant roles in internal control – Others where fraud could have a material effect on the financial statements • Knowledge of allegations of fraud or suspected fraud communicated by employees, former employees, regulators or others. OmniPro Education & Training 11 of 105
  14. 14. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Fraud Risk Factors for SMEs • Poor trading results, significant losses, possible liquidation • Significant related party transactions with un-audited entities • Domination of management by a single person or group of people • Ineffective internal controls and system weaknesses • Large amounts of cash • Large number of small stock items • Lack of control over assets and stock Engagement Team Meeting • Exchange of ideas and responses to potential frauds • Opportunity for more experienced team members to share their ideas • Known external and internal factors including culture and environment • Managements involvement in overseeing employees • Consideration of unusual or unexplained changes in behaviour or lifestyle of employees ISA 240 - Fraud • Audit team discuss and assess likelihood • Inquire of management and all relevant parties • Documentation of internal controls • Random approach to and nature of audit testing • Specific testing at assertion level • Assess possibility of management override • Withdraw from engagement if necessary and communicate with appropriate parties OmniPro Education & Training 12 of 105
  15. 15. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 240 - Fraud • Management Override • Irrespective of overall risk assessment • Substantive testing on journal entries • Review of estimates • Obtain an understanding of the entity to the extent that you would be able to identify unusual patterns, trends or transactions • Revenue recognition Revenue Recognition • Shifting revenue to future periods • Not recognising all revenues in the current period • To be supported by calculations and basis for assumption where the conclusion is reached that there is no risk of material misstatement Audit Procedures to Address Fraud Risk Factors • Location visits and surprise or unannounced tests • Interviews of personnel • Cut off testing • Substantive P&L & System testing • Cash counts • Random sample selection for testing purposes – Not tested due to materiality or risk, different timing methods, different sampling methods • 3rd party confirmations OmniPro Education & Training 13 of 105
  16. 16. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Commonly Overlooked Fraud Indicators • Discrepancies in accounting records • Missing documents • Inconsistent or vague management and/or employee responses • Denial of access to records and information on a timely basis • Large number of credit entries • Transactions not recorded on a timely basis • Unwillingness to address system weaknesses ISA 250 – The Auditors Responsibilities Relating to Laws and Regulations • Laws and regulations may materially affect the financial statements • Obtain a general understanding of the legal and regulatory framework within which the entity operates • Assess safeguards to ensure compliance and audit work to identify possible instances of non compliance ISA 250 – The Auditors Responsibilities Relating to Laws and Regulations • Money Laundering • Criminal Justice Theft and Fraud Offences • Tax Acts • Companies Acts • Trade Laws • Laws of the Land • Specific for the client, the sector & the entity • Look beyond the accounts data and information OmniPro Education & Training 14 of 105
  17. 17. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 250 – The Auditors Responsibilities Relating to Laws and Regulations • Establish and set out regulatory framework • Inquire of management • Inspect correspondence in relation to licensing or regulatory authorities • Remain alert to the possibility • Written representations ISA 320 – Materiality in Planning & Performing the Audit • Auditor should apply materiality appropriately in planning and performing the audit • Materiality as a whole • Performance materiality • Revise as the audit progresses ISA 320 – Materiality in Planning & Performing the Audit • When auditing financial statements • Aim is to express an opinion • That the financial statements are prepared • In all material respects • In accordance with financial reporting framework • Use materiality – when determining the nature, timing and extent of audit procedures – Evaluating the effect of misstatements OmniPro Education & Training 15 of 105
  18. 18. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 320 – Materiality in Planning & Performing the Audit • Documentation required • Materiality as a whole • Materiality for particular classes of transactions • Performance materiality • Revision of materiality as the audit progresses ISA 315 Identifying and Assessing the Risks of Material Misstatement • The auditor should obtain an understanding of the entity and its environment • including its internal controls • sufficient to identify and assess the risks of material misstatement • of the financial statements whether due to fraud or error • at financial statement and assertion level • and sufficient to design and perform further audit procedures ISA 315 – Practical Risk Assessment • Where do we need to focus our attention? • What are the issues that we will need to consider in forming our final opinion? • Where do we need to deviate from the standard audit testing? • Where do we need to do more testing and take bigger sample sizes? OmniPro Education & Training 16 of 105
  19. 19. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 315 Identifying and Assessing the Risks of Material Misstatement Risk Assessment Procedures • Inquiry of management and others within the entity • Analytical procedures • Observation and inspection ISA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity • Industry regulatory and other external factors • Nature of the entity, including selection and application of accounting policies – Business operations, financing, structure and financial control • Selection and application of accounting policies • Objectives and strategies and the related business risks that may result in a material misstatement of the financial statements – Future plans and operations of the company • Measurement and review of the entities performance – KPIs and ratios • Internal control ISA 315 Understanding the entity and its Environment and Assessing the Risks of Material Misstatement Internal Control • The control environment • The entities risk assessment process • The information system including the related business processes, relevant to financial reporting and communication • Control activities • Monitoring of controls OmniPro Education & Training 17 of 105
  20. 20. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 315 Identifying and Assessing the Risks of Material Misstatement Understanding of the Information System • Classes of transactions that are significant to the FS • Initiating, recording, processing and reporting • The related accountings records • How the information systems captures events and conditions other than classes of transactions, that are significant to the financial statements • Financial reporting process used to prepare the entities financial statements, including significant accounting estimates and disclosures ISA 315 Identifying and Assessing the Risks of Material Misstatement • Assertions about classes of transactions and events for the period – Occurrence – Completeness – Accuracy – Cut – Off – Classification ISA 315 Identifying and Assessing the Risks of Material Misstatement • Assertions about balances at the period end – Existence – Rights & Obligations – Completeness – Valuation and allocation OmniPro Education & Training 18 of 105
  21. 21. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 315 Identifying and Assessing the Risks of Material Misstatement • Assertions about presentations and disclosures – Occurrence and rights and obligations – Completeness – Classification and understand ability – Accuracy – Valuation ISA 315 Identifying and Assessing the Risks of Material Misstatement • Significant risks should be identified – Fraud – Pending litigation – Any major recent developments including economic and accounting changes – Rapid business expansion – Complex transactions – Weaknesses in internal control – Degree of subjectivity of those involved with measurement of financial information – Going concern issues – Unusual transactions outside the normal course of business ISA 315 Identifying and Assessing the Risks of Material Misstatement • Documentation – Discussion among the engagement team – Key elements of understanding – Identified and assessed risks of material misstatement – Risks identified and related controls OmniPro Education & Training 19 of 105
  22. 22. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 330 The Auditor’s Responses to Assessed Risks • Obtain sufficient appropriate audit evidence • regarding assessed risks of material misstatement • by designing and implementing appropriate responses to risks • Substantive tests • Tests of controls ISA 330 The Auditor’s Responses to Assessed Risks • Should perform audit procedures whose nature, timing and extent are responsive to the identified risks of material misstatement • Nature – inspection, observation, inquiry, confirmation, recalculation, re performance, analytical procedures • Timing – when procedures are performed or what period they examine • Extent – quantity of audit procedures undertaken. Sample size or number of observations ISA 330 The Auditor’s Responses to Assessed Risks • Test of Controls • Design and perform tests of control in relation to their effectiveness • Impact on assertion level testing • Substantive procedures alone can not provide sufficient appropriate audit evidence at assertion level OmniPro Education & Training 20 of 105
  23. 23. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 330 The Auditor’s Responses to Assessed Risks • How to test controls • How were they applied during the period • How consistently were they applied • By whom or by what means were they applied • Depending on circumstances may rely on previous control tests minimum test once every 3rd audit ISA 330 The Auditor’s Responses to Assessed Risks • Substantive procedures • Regardless of risks • Auditors should design and perform substantive procedures for each • material class of transaction • account balance • and disclosure ISA 330 The Auditor’s Responses to Assessed Risks • Substantive procedures • Agree the financial statements to underlying accounting records • Examine material journal entries made during the course of preparing the financial statements OmniPro Education & Training 21 of 105
  24. 24. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 330 The Auditor’s Responses to Assessed Risks • Evaluate Audit Evidence • Based on audit evidence gathered • Make judgement whether risk assessment is appropriate and sufficient • Adequacy of presentation and disclsoure • And form a suitable opinion • This audit evidence and opinion reached must be documented on the file ISA 330 The Auditor’s Responses to Assessed Risks • Documentation – Overall responses to risk – Linkage of procedures to risks at assertion level – Results of the audit procedures – Financial statements agree with underlying accounting records ISA 520 – Analytical Procedures • Objectives • Obtain relevant and reliable audit evidence when using substantive analytical procedures • Design and perform analytical procedures near the end of the audit when forming an overall conclusion as to whether the financial statements are consistent with the auditors understanding OmniPro Education & Training 22 of 105
  25. 25. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. ISA 520 – Analytical Procedures • Substantive analytical procedures – For specific assertions at planning stage • Analytical procedures that assist when forming an overall conclusion • Investigate the results of analytical procedures – Enquiry of management – Performing other audit procedures The Audit Overview 1. Accept the audit and comply with the ethical standards 2. Plan our approach identifying risk areas but focussing on our overall objective to form an opinion. 3. Set overall strategy responding to assessed risks 4. Identify risks by gaining an understanding of the entity 5. Assess possibility of fraud 6. Devise and set out testing to achieve our objectives responding to risks in accordance with ISAs The Audit Overview 7. Do the testing and gather the evidence based on our plan 8. Continually ensuring that quality control procedures are being applied and complied with 9. Pay specific attention to areas of risk and perform specific additional testing required to enable us form overall opinion in this area 10. Reach conclusions based on testing done and evidence gathered and form an opinion 11. Issue an audit report OmniPro Education & Training 23 of 105
  26. 26. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. OmniPro Services • Assist Accountants • Maximise profitability • Improve quality of customer service • Be compliant – Institute, audit company & law • Achieve success • Gain peace of mind • The Accountants Resource Centre Accountants Resource Centre • Large Company Audit File – Programmes and the integrated working papers and file • Small Company Audit File – Programmes and the integrated working papers and file • Audit Exempt, Sole Trader, Property Management and Charity File • ISQC1 Manual Sole Practitioner and Partner • Template letters and communications • Ongoing technical updates • Audit Report Tracker • Coming 2011 - Members forum OmniPro Services • OmniPro Corporate Consultants – Company Formation Services • Standard Formations for €250.00 (incl VAT) • 24 Hour Turn Around – Company Secretarial Services • Annual Compliance • All Company Secretarial Special Assignments • Company Secretarial Training • Next Door to the Companies Registration Office OmniPro Education & Training 24 of 105
  27. 27. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. OmniPro Services • OmniPro Practice Support – Pre-Monitoring Visits – Strategic Planning & Implementation – Practice Development – Practice Sale, Purchase & Merger – In House Training – File Review Services • OmniPro Strategic Solutions – Product & Marketing Solutions to Build Business Advisory Fees – Practice Growth Solutions OmniPro Services • OmniPro Education & Training – Professional CPD Seminars • Technical CPD • Personal Development Training for Accountants – Time management, business communication skills, Presentation skills, team leadership, management development • In House Training OmniPro Supporting Irish Accountants Unit 3 South Court, Iveagh Court Wexford Road Business Park, Harcourt Road Carlow. Dublin 2 doneill@omnipro.ie gwynne@omnipro.ie 059 9183888 01 4110000 OmniPro Education & Training 25 of 105
  28. 28. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Auditors Resource List 2011Title Description Source Download1 International Standards on Auditing 2010 Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements IAASB http://web.ifac.org/publications General Principles and Responsibilities Overall Objectives of the Independent Auditor and the Conduct of an Audit in200 Accordance with the International Standards on Auditing IAASB http://web.ifac.org/publications210 Agreeing the Terms of Audit Engagements IAASB http://web.ifac.org/publications220 Quality Control for an Audit of Financial Information IAASB http://web.ifac.org/publications230R Audit Documentation IAASB http://web.ifac.org/publications240 The Auditors Responsibilities relating to Fraud in an Audit of Financial Statements IAASB http://web.ifac.org/publications250 Consideration of Laws and Regulations in an Audit of Financial Statements IAASB http://web.ifac.org/publications260 Communication With Those Charged with Governance IAASB http://web.ifac.org/publications Communicating Deficiencies in Internal Control to Those Charged with265 Governance and Management Risk Assesment and Response to Assessed Risks300 Planning an Audit of Financial Statements IAASB http://web.ifac.org/publications Identifying and Assessing the Risks of Material Misstatement through315 Understanding the Entity and Its Environment IAASB http://web.ifac.org/publications320 Materiality in Planning and Performing an Audit IAASB http://web.ifac.org/publications330 The Auditors Responses to Assessed Risks IAASB http://web.ifac.org/publications402 Audit Considerations Relating to an Entity Using a Service Organisation IAASB http://web.ifac.org/publications450 Evaluation of Misstatements Identified During the Audit IAASB http://web.ifac.org/publications Audit Evidence500 Audit Evidence IAASB http://web.ifac.org/publications501 Audit Evidence - Specific considerations for Selected Items IAASB http://web.ifac.org/publications505 External Confirmations IAASB http://web.ifac.org/publications510 Initial Engagements - Opening Balances IAASB http://web.ifac.org/publications520 Analytical Procedures IAASB http://web.ifac.org/publications530 Audit Sampling IAASB http://web.ifac.org/publications Audit of Accounting Estimates, Including Fair Value Accounting Estimates, and540 Related Disclosures IAASB http://web.ifac.org/publications550 Related Parties IAASB http://web.ifac.org/publications560 Subsequent Events IAASB http://web.ifac.org/publications570 Going Concern IAASB http://web.ifac.org/publications580 Written Representations IAASB http://web.ifac.org/publications Using the Work of Others www.omnipro.ie OmniPro Education & Training 26 of 105
  29. 29. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Speicial Considerations - Audits of Group Financial Statements (Including the600 Work of Component Auditors) IAASB http://web.ifac.org/publications610 Considering the Work of Internal Auditors IAASB http://web.ifac.org/publications620 Using the work of an Auditors Expert IAASB http://web.ifac.org/publications Audit Conlusions and Reporting700 Forming an Opinion and Reporting on Financial Statements IAASB http://web.ifac.org/publications705 Modifications to the Opinion in the Independent Auditors Report IAASB http://web.ifac.org/publications Emphasis of Matter Paragraphs and Other Matters Paragraphs in the Independent706 Auditors Report IAASB http://web.ifac.org/publications Comparative Information - Correpsonding Figures and Comparative Financial710 Statements IAASB http://web.ifac.org/publications The Auditors Responsibilities Relating to Other Information in Documents720 Containing Audited Financial Statements IAASB http://web.ifac.org/publications Specialised Areas Audits of Financial Statements Prepared in Accordance with Special Purpose800 Frameworks IAASB http://web.ifac.org/publications Audits of Single Financial Statements and Specific Elements, Accounts or Items of805 a Financial Statement IAASB http://web.ifac.org/publications810 Engagements to Report on Summary Financial Statements IAASB http://web.ifac.org/publications2 Ethics 2010 Handbook of Code of Ethics for Professional Accountants IFAC http://web.ifac.org/publications3 Bulletins2006-1 Auditors Reports on Financial Statements in ROI APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=1 Audit Issues when Financial Market Conditions are Difficult and Credit Facilities2008-1 may be restricted APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=12008-10 Going Concern issues during the Current Economic Conditions APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=12009-2 Auditors Reports on Financial Statements in the United Kingdom APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=14 Practice NotesPN 09 Reports by Auditors under Companies Legislation in ROI APB http://www.frc.org.uk/apb/publications/practice.cfmPN 11 The audit of Charities in UK APB http://www.frc.org.uk/apb/publications/practice.cfmPN 15 The audit of Occupational Pension Schemes APB http://www.frc.org.uk/apb/publications/practice.cfmPN 16 Bank Reports for Audit Purposes in UK APB http://www.frc.org.uk/apb/publications/practice.cfmPN 19 The Audit of Banks APB http://www.frc.org.uk/apb/publications/practice.cfmPN 20 The Audit of Insurers APB http://www.frc.org.uk/apb/publications/practice.cfmPN 21 Audit of Investment Businesses in UK APB http://www.frc.org.uk/apb/publications/practice.cfmPN 22 Auditors Consideration of FRS 17 Retirement Benefits Defined Pension Schemes APB http://www.frc.org.uk/apb/publications/practice.cfmPN 23 Auditing Complex Financial Instruments (Interim Guidance) APB http://www.frc.org.uk/apb/publications/practice.cfmPN 24 Audit of Friendly Societies in UK APB http://www.frc.org.uk/apb/publications/practice.cfmPN 25 Attendance at Stock Taking APB http://www.frc.org.uk/apb/publications/practice.cfmPN 26 Guidance on Smaller Entity Audit Documentation (Revised Dec 2009) APB http://www.frc.org.uk/apb/publications/practice.cfm www.omnipro.ie OmniPro Education & Training 27 of 105
  30. 30. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.PN 27 The Audit of Credit Unions APB http://www.frc.org.uk/apb/publications/practice.cfm5 Miscellaneous Technical StatementsM01 Auctioneer and House Agents Acts 1947 and 1967 CCABI Institute WebsiteM09 Accouting for goods sold subject to reservation of title CCABI Institute WebsiteM21 Directors obligation under Section 40 of the Companies (Amendment) Act 1983 CCABI Institute WebsiteM22 Credit Unions - ROI CCABI Institute Website Accountants report on license applications to Department of Tourism, TransportM27 and Communications Dublin CCABI Institute WebsiteM31 Accounting for redemption and purchase of own shares by companies in ROI CCABI Institute WebsiteM32 Related party disclosures CCABI Institute WebsiteM35 Solicitors accounts Regulations 1998 - Northern Ireland CCABI Institute WebsiteM37 Restoration of companies to register - ROI CCABI Institute WebsiteM38 Solicitors accounts regulations 2001 - ROI CCABI Institute WebsiteM39 Reporting to third parties CCABI Institute Website Chartered Accountants reports on compilation of financial statements ofM41 incorporated entities CCABI Institute WebsiteM42 Anti Money Laundering Guidance in ROI CCABI Institute WebsiteM43 Compilation of alternative annual reports of certain pension schemes in ROI CCABI Institute Website Guidance reporting Guidance Notes 1 05 UCITS Publication of a simplifiedM44 prospectus issued by Financial Regulator CCABI Institute WebsiteM45 Grant claims CCABI Institute Website Reporting to Financial Regulator under Central Bank and Financial ServicesM46 Authority of Ireland Act 2004 revised January 2005 CCABI Institute Website Guidance for reporting in accordance with client money regulations issued byM47 Financial Regulator February 2004 CCABI Institute Website Chartered Accountants Reports on compilation of Historical Financial informationM48 of Unincorporated Entities CCABI Institute Website6 General ISQC1 International Standard on Quality Control IAASB http://www.ifac.org/Guidance/EXD-Details.php?EDID=0086 Guide to Using the ISAs for SMEs IFAC http://www.ifac.org/Members/DownLoads/ISA_Audit_Guide.pdf Guide to Quality Control for SMEs Applying ISAs Proportionately with the Size and Complexity of an Entity IFAC http://web.ifac.org/publications/international-auditing-and-assurance-standards-board Audit Considerations in Respect of Going Concern in the Current Economic Environment IFAC http://web.ifac.org/publications/international-auditing-and-assurance-standards-board Emerging Practical Issues Regarding the use of External Confirmations in the Audit of Financial Statements IFAC http://web.ifac.org/publications/international-auditing-and-assurance-standards-board Challenges in Auditing Fair Value Accounting Estimates in the Current Market Environment IFAC http://web.ifac.org/publications/international-auditing-and-assurance-standards-board The Role of Small and Medium Practices in providing Business Support to Small and Medium sized Enterprises IFAC http://web.ifac.org/publications/small-and-medium-practices-committee Quality Control for Small and Medium Sized Practices IFAC http://web.ifac.org/publications/small-and-medium-practices-committee www.omnipro.ie OmniPro Education & Training 28 of 105
  31. 31. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Practice 26 2009 Note (Revised) GUIDANCE ON SMALLER ENTITY December AUDIT DOCUMENTATION OmniPro Education & Training 29 of 105
  32. 32. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Practice Note 26 (Revised) December 2009 PRACTICE NOTE 26 GUIDANCE ON SMALLER ENTITY AUDIT DOCUMENTATION (REVISED) Contents Paragraphs 1. Introduction 1–4 2. Purposes of audit documentation 5 – 11 3. Special considerations in the documentation of a smaller entity audit 12 – 35 4. Audit documentation requirements in ISAs (UK and Ireland) 36 – 42 Appendix A – Summary of documentation requirements and guidance in ISAs (UK and Ireland) Appendix B – Illustrative examples of audit documentation THE AUDITING 1 PRACTICES BOARD OmniPro Education & Training 30 of 105
  33. 33. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Practice Note 26 (Revised) December 2009 Introduction 1. This Practice Note provides guidance to auditors on the application of documentation requirements contained within the clarified International Standards on Auditing (ISAs) (UK and Ireland)1 to the audit of financial statements of smaller entities in an efficient manner. It should be read in conjunction with the ISAs (UK and Ireland). It is not intended to be comprehensive guidance on the application of ISAs (UK and Ireland) to smaller audits2. 2. The guidance in this Practice Note is directed to auditors of smaller, simpler entities. Typically these would be entities where: ownership is concentrated in a small number of individuals (sometimes a single individual) who are actively involved in managing the business; and the operations are uncomplicated with few sources of income and activities; and business processes and accounting systems are simple; and internal controls are relatively few and may be informal. Such entities are likely to include companies which are exempt from audit but which choose nonetheless to have a voluntary audit, small subsidiary companies, other smaller entities such as charities, as well as larger entities that are also relatively simple. However, a more detailed and rigorous approach may be necessary in smaller entities with complex operations or in respect of complex and subjective matters. 3. The guidance focuses on areas where feedback on the original implementation of the ISAs (UK and Ireland) in 2004 identified that further guidance on audit documentation could be helpful. For example, there can be uncertainty about the extent of documentation required to evidence the auditor’s understanding of the entity, especially with regard to internal control3. 1 The clarified ISAs (UK and Ireland) were issued by the APB in October 2009 and are effective for audits of financial statements for periods ending on or after 15 December 2010. 2 The ISAs (UK and Ireland) also include guidance on considerations specific to smaller entities which may assist in the application of the standards. 3 ISA (UK and Ireland) 315 requires the auditor to document key elements of understanding obtained regarding: relevant industry, regulatory and other external factors including the applicable financial reporting framework; the nature of the entity; the entity’s selection and application of accounting policies; the entity’s objectives and strategies; the means by which the entity’s financial performance is measured and reviewed; and each of the internal control components (the control environment, the entity’s risk assessment process, the information system, control activities, and monitoring controls). THE AUDITING 2 PRACTICES BOARD OmniPro Education Training 31 of 105
  34. 34. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Practice Note 26 (Revised) December 2009 4. There are many different ways in which audit documentation can be prepared to meet the requirements of ISA (UK and Ireland). The examples which are included in Appendix B to this document are illustrative of some of the possible ways in which compliance with the documentation requirements can be achieved. However, these illustrative examples are not mandatory. Purposes of audit documentation 5. ISA (UK and Ireland) 230, ‘‘Audit Documentation,’’ states that the objective of the auditor is to prepare documentation that provides: (a) A sufficient and appropriate record of the basis for the auditor’s report; and (b) Evidence that the audit was planned and performed in accordance with ISAs (UK and Ireland) and applicable legal and regulatory requirements. 6. ISA (UK and Ireland) 230 explains that, in principle, compliance with the requirements of it will result in the audit documentation being sufficient and appropriate in the circumstances. 7. Some of the other ISAs (UK and Ireland) contain specific documentation requirements that are intended to clarify the application of ISA (UK and Ireland) 230 in the particular circumstances of those other standards. The absence of a documentation requirement in any particular ISA (UK and Ireland) is not intended to suggest that there is no documentation that will be prepared as a result of complying with that standard. 8. Importantly, ISA (UK and Ireland) 230 also explains that it is neither necessary nor practicable for the auditor to document every matter considered, or professional judgment made, in an audit. Further, it is unnecessary for the auditor to document separately (as in a checklist, for example) compliance with matters for which compliance is demonstrated by documents included within the audit file (e.g. the existence of an adequately documented audit plan demonstrates that the auditor has planned the audit). 9. The auditor is required to prepare audit documentation on a timely basis. ISA (UK and Ireland) 230 explains that preparing sufficient and appropriate audit documentation on a timely basis helps to enhance the quality of the audit and facilitates the effective review and evaluation of the audit evidence obtained and conclusions reached before the auditor’s report is finalised. Documentation prepared after the audit work has been performed is likely to be less accurate than documentation prepared at the time such work is performed. 10. In addition to the objectives in paragraph 5, audit documentation serves a number of additional purposes, including: assisting the engagement team to plan and perform the audit; THE AUDITING 3 PRACTICES BOARD OmniPro Education Training 32 of 105
  35. 35. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Practice Note 26 (Revised) December 2009 assisting members of the engagement team responsible for supervision to direct and supervise the audit work, and to discharge their review responsibilities in accordance with ISA (UK and Ireland) 220, ‘‘Quality Control for an Audit of Financial Statements’’; enabling the engagement team to be accountable for its work; retaining a record of matters of continuing significance to future audits; enabling the conduct of quality control reviews and inspections in accordance with International Standard on Quality Control (ISQC) (UK and Ireland) 1, ‘‘Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements’’; and enabling the conduct of external inspections in accordance with applicable legal, regulatory or other requirements. 11. Complying with the documentation requirements of the ISAs (UK and Ireland) can also assist the auditor’s consideration of the issues associated with significant matters arising during the audit. This often enhances the quality of the reasoning followed, the judgments made and the conclusions reached. In the UK and Ireland external monitoring of audits has consistently emphasised the need for high quality documentation of the rationale for the key audit judgments made in reaching the audit opinion. As noted in paragraph 13 below, documentation of significant professional judgements made in reaching important conclusions is now clearly identified as a requirement in ISA (UK and Ireland) 230. Special considerations in the documentation of a smaller entity audit 12. The nature and extent of audit documentation that is appropriate for an audit of a smaller entity is influenced by special considerations which arise from: the qualitative indicators of a simpler entity as set out in paragraph 2: concentration of ownership and management; uncomplicated operations; simple accounting systems; and relatively small number and informal nature of controls; and the characteristics of a typical smaller entity audit team and the way in which they carry out the audit work, including: the nature of the professional relationship between smaller entities and their auditors; relatively small team size; the use of proprietary audit systems. THE AUDITING 4 PRACTICES BOARD OmniPro Education Training 33 of 105
  36. 36. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Practice Note 26 (Revised) December 2009 13. Notwithstanding these special considerations, an audit of the financial statements for a smaller entity must still comply with the ISAs (UK and Ireland) and all audit documentation must be prepared in sufficient detail to enable an experienced auditor, having no previous connection with the audit, to understand: (a) The nature, timing, and extent of the audit procedures performed to comply with the ISAs (UK and Ireland) and applicable legal and regulatory requirements; (b) The results of the audit procedures performed, and the audit evidence obtained; and (c) Significant matters arising during the audit, the conclusions reached thereon and significant professional judgments made in reaching those conclusions. Concentration of ownership and management 14. The ownership of a smaller entity is often concentrated in a small number of individuals, one or more of whom are actively involved in managing the business on a day-to-day basis. In these circumstances, the auditor’s documentation of the entity’s ownership and governance arrangements is likely to be relatively brief. 15. Particular consideration and documentation may be needed of matters, such as family and other close relationships, which may impact the auditor’s risk assessments in relation to related parties. Uncomplicated operations 16. Smaller entities often have a limited range of products or services and operate from a limited number of locations, with the consequence that their processes and structures are uncomplicated. In circumstances where an entity’s business, processes and structures are uncomplicated, the documentation of the auditor’s understanding of such an entity’s operations and of the relevant industry, regulatory and other external factors required under ISA (UK and Ireland) 315 is likely to be simple in form and relatively brief. 17. This understanding may be documented using, for example, free-form narrative notes or by completing a structured form. The notes may be maintained separately or incorporated in the documentation of the overall audit strategy required by ISA (UK and Ireland) 300. 18. To comply with the ISAs (UK and Ireland), it is not necessary to document the entirety of the auditor’s understanding of the entity and matters related to it. Key elements of the understanding documented by the auditor include those on which the auditor has based the assessment of the risks of material misstatement in the financial statements. Simple accounting systems 19. Most smaller entities have a relatively uncomplicated accounting process. They are likely to employ few, if any, personnel solely engaged in record-keeping and there will be limited opportunities for segregation of duties. THE AUDITING 5 PRACTICES BOARD OmniPro Education Training 34 of 105
  37. 37. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Practice Note 26 (Revised) December 2009 20. Bookkeeping procedures and accounting records are often simple and there are usually no documented descriptions of accounting policies or procedures. Smaller entities are likely to use an off-the-shelf accounting package in producing their accounts. Understanding of the accounting package in question, including that gained from other audits, can help the auditor to identify and focus on areas of risk of misstatement that arise from the accounting system. 21. The audit documentation associated with the accounting system is likely to be relatively simple, focussing on how the main transaction cycles operate (including how a transaction originates and gets recorded) and highlighting the risks of material misstatement that arise from the nature of the systems in place4. Relatively small number and informal nature of controls 22. In the audit of a smaller entity, the auditor may decide that most of the audit evidence will be obtained from substantive tests of detail. Notwithstanding this, as part of the process of assessing the risks of material misstatement, the auditor is required by ISA (UK and Ireland) 315 to obtain and document an understanding of the components of the entity’s internal control relevant to the audit (including, for example, the control environment, information systems relevant to financial reporting, and control activities). 23. Size and economic considerations in smaller entities often reduce the opportunity for formal control activities, although some basic control activities are likely to exist for the main transaction cycles such as revenues, purchases and employment costs. Management’s direct control over key decisions and the ability to intervene personally at any time to ensure an appropriate response to changing circumstances are often important features of the management of any entrepreneurial venture. For example, management’s sole authority for granting credit to customers and approving significant purchases can provide strong control over those important account balances and transactions, lessening or removing the need for more detailed control activities. Furthermore, management often has a personal interest in safeguarding the assets of the entity, measuring its performance and controlling its activities, and so they will apply their own controls and develop their own key indicators of performance. 24. However, the dominant position of management in a smaller entity may be abused and can result in the override of controls and inaccurate accounting records. Furthermore, personal and business objectives can be inextricably linked in the mind of the owner- manager, which increases audit risk. For example, personal tax planning considerations 4 Auditors of UK companies will be conscious of their responsibilities under Section 498 of the Companies Act 2006 to carry out such investigations as will enable them to form an opinion as to whether adequate accounting records have been kept by the company. Equivalent requirements for the Republic of Ireland relate to proper books of account and are contained in section 193 of the Companies Act 1990. THE AUDITING 6 PRACTICES BOARD OmniPro Education Training 35 of 105
  38. 38. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Practice Note 26 (Revised) December 2009 might be important and could provide management with the motivation to bias the financial statements. 25. The extent and nature of management’s involvement in internal control in a smaller entity is likely to be a key aspect in the documentation of the auditor’s understanding of the entity and assessment of risk, including, for example: The evaluation of the control environment, including consideration of the attitude and motives of management based on prior year experience and the observation of management’s actions during the audit. Specific control activities relevant to the audit. These are likely to be limited but may include management’s direct involvement in, and/or supervision of, controls that mitigate risks of material misstatement. The key indicators used by management for evaluating financial performance. Nature of the professional relationship between smaller entities and their auditors 26. Management of a smaller entity often need professional advice and assistance on a wide range of accounting and related financial and business issues which are not available ‘‘in- house’’, and it is common for the audit firm to provide non-audit services including accounting and taxation services. These services can enable the auditor to obtain useful information about the entity and about its objectives and strategies and the management style and ethos, as well as helping to keep the understanding of the entity up to date and so plan the audit efficiently. 27. In circumstances where the audit firm provides non-audit services, the auditor bears in mind the need to maintain objectivity when forming and expressing an opinion on the financial statements. When forming an opinion, but before issuing the report on the financial statements, the audit engagement partner reaches and documents an overall conclusion5 that any threats to objectivity and independence have been properly addressed in accordance with APB Ethical Standards including, where appropriate, ES – Provisions Available for Small Entities6. 28. The documentation considerations associated with providing non-audit services include the following: 5 As required by paragraphs 48 and 64 of ES 1. 6 ES – Provisions Available for Small Entities provides alternative provisions for auditors of Small Entities (size criteria for Small Entities are set out in paragraph 4) to apply in respect of certain threats arising from economic dependence and the provision of non-audit services and allows the option of exemptions from certain requirements in ES 1 to 5. THE AUDITING 7 PRACTICES BOARD OmniPro Education Training 36 of 105

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