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Audit Accepance & Planning
The document outlines the requirements and structure for completing a CPD course related to audit acceptance and planning. It emphasizes the importance of quality control procedures, ethical considerations, and risk assessment in auditing, particularly concerning fraud detection and compliance with laws and regulations. Additionally, it covers the auditor's responsibilities, audit strategies, and necessary documentation needed to achieve effective audit outcomes.
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Audit Accepance & Planning
- 1. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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 2011 Title Description Source Download 1 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 in 200 Accordance with the International Standards on Auditing IAASB http://web.ifac.org/publications 210 Agreeing the Terms of Audit Engagements IAASB http://web.ifac.org/publications 220 Quality Control for an Audit of Financial Information IAASB http://web.ifac.org/publications 230R Audit Documentation IAASB http://web.ifac.org/publications 240 The Auditor's Responsibilities relating to Fraud in an Audit of Financial Statements IAASB http://web.ifac.org/publications 250 Consideration of Laws and Regulations in an Audit of Financial Statements IAASB http://web.ifac.org/publications 260 Communication With Those Charged with Governance IAASB http://web.ifac.org/publications Communicating Deficiencies in Internal Control to Those Charged with 265 Governance and Management Risk Assesment and Response to Assessed Risks 300 Planning an Audit of Financial Statements IAASB http://web.ifac.org/publications Identifying and Assessing the Risks of Material Misstatement through 315 Understanding the Entity and It's Environment IAASB http://web.ifac.org/publications 320 Materiality in Planning and Performing an Audit IAASB http://web.ifac.org/publications 330 The Auditor's Responses to Assessed Risks IAASB http://web.ifac.org/publications 402 Audit Considerations Relating to an Entity Using a Service Organisation IAASB http://web.ifac.org/publications 450 Evaluation of Misstatements Identified During the Audit IAASB http://web.ifac.org/publications Audit Evidence 500 Audit Evidence IAASB http://web.ifac.org/publications 501 Audit Evidence - Specific considerations for Selected Items IAASB http://web.ifac.org/publications 505 External Confirmations IAASB http://web.ifac.org/publications 510 Initial Engagements - Opening Balances IAASB http://web.ifac.org/publications 520 Analytical Procedures IAASB http://web.ifac.org/publications 530 Audit Sampling IAASB http://web.ifac.org/publications Audit of Accounting Estimates, Including Fair Value Accounting Estimates, and 540 Related Disclosures IAASB http://web.ifac.org/publications 550 Related Parties IAASB http://web.ifac.org/publications 560 Subsequent Events IAASB http://web.ifac.org/publications 570 Going Concern IAASB http://web.ifac.org/publications 580 Written Representations IAASB http://web.ifac.org/publications Using the Work of Others www.omnipro.ie OmniPro Education & Training 26 of 105
- 29. A Personalised CPDCertificate 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 the 600 Work of Component Auditors) IAASB http://web.ifac.org/publications 610 Considering the Work of Internal Auditors IAASB http://web.ifac.org/publications 620 Using the work of an Auditor's Expert IAASB http://web.ifac.org/publications Audit Conlusions and Reporting 700 Forming an Opinion and Reporting on Financial Statements IAASB http://web.ifac.org/publications 705 Modifications to the Opinion in the Independent Auditor's Report IAASB http://web.ifac.org/publications Emphasis of Matter Paragraphs and Other Matters Paragraphs in the Independent 706 Auditor's Report IAASB http://web.ifac.org/publications Comparative Information - Correpsonding Figures and Comparative Financial 710 Statements IAASB http://web.ifac.org/publications The Auditors Responsibilities Relating to Other Information in Documents 720 Containing Audited Financial Statements IAASB http://web.ifac.org/publications Specialised Areas Audits of Financial Statements Prepared in Accordance with Special Purpose 800 Frameworks IAASB http://web.ifac.org/publications Audits of Single Financial Statements and Specific Elements, Accounts or Items of 805 a Financial Statement IAASB http://web.ifac.org/publications 810 Engagements to Report on Summary Financial Statements IAASB http://web.ifac.org/publications 2 Ethics 2010 Handbook of Code of Ethics for Professional Accountants IFAC http://web.ifac.org/publications 3 Bulletins 2006-1 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 Facilities 2008-1 may be restricted APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=1 2008-10 Going Concern issues during the Current Economic Conditions APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=1 2009-2 Auditors Reports on Financial Statements in the United Kingdom APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=1 4 Practice Notes PN 09 Reports by Auditors under Companies Legislation in ROI APB http://www.frc.org.uk/apb/publications/practice.cfm PN 11 The audit of Charities in UK APB http://www.frc.org.uk/apb/publications/practice.cfm PN 15 The audit of Occupational Pension Schemes APB http://www.frc.org.uk/apb/publications/practice.cfm PN 16 Bank Reports for Audit Purposes in UK APB http://www.frc.org.uk/apb/publications/practice.cfm PN 19 The Audit of Banks APB http://www.frc.org.uk/apb/publications/practice.cfm PN 20 The Audit of Insurers APB http://www.frc.org.uk/apb/publications/practice.cfm PN 21 Audit of Investment Businesses in UK APB http://www.frc.org.uk/apb/publications/practice.cfm PN 22 Auditors Consideration of FRS 17 Retirement Benefits Defined Pension Schemes APB http://www.frc.org.uk/apb/publications/practice.cfm PN 23 Auditing Complex Financial Instruments (Interim Guidance) APB http://www.frc.org.uk/apb/publications/practice.cfm PN 24 Audit of Friendly Societies in UK APB http://www.frc.org.uk/apb/publications/practice.cfm PN 25 Attendance at Stock Taking APB http://www.frc.org.uk/apb/publications/practice.cfm PN 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. A Personalised CPDCertificate 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.cfm 5 Miscellaneous Technical Statements M01 Auctioneer and House Agents Acts 1947 and 1967 CCABI Institute Website M09 Accouting for goods sold subject to reservation of title CCABI Institute Website M21 Director's obligation under Section 40 of the Companies (Amendment) Act 1983 CCABI Institute Website M22 Credit Unions - ROI CCABI Institute Website Accountants report on license applications to Department of Tourism, Transport M27 and Communications Dublin CCABI Institute Website M31 Accounting for redemption and purchase of own shares by companies in ROI CCABI Institute Website M32 Related party disclosures CCABI Institute Website M35 Solicitors accounts Regulations 1998 - Northern Ireland CCABI Institute Website M37 Restoration of companies to register - ROI CCABI Institute Website M38 Solicitors accounts regulations 2001 - ROI CCABI Institute Website M39 Reporting to third parties CCABI Institute Website Chartered Accountants reports on compilation of financial statements of M41 incorporated entities CCABI Institute Website M42 Anti Money Laundering Guidance in ROI CCABI Institute Website M43 Compilation of alternative annual reports of certain pension schemes in ROI CCABI Institute Website Guidance reporting Guidance Notes 1 05 UCITS Publication of a simplified M44 prospectus issued by Financial Regulator CCABI Institute Website M45 Grant claims CCABI Institute Website Reporting to Financial Regulator under Central Bank and Financial Services M46 Authority of Ireland Act 2004 revised January 2005 CCABI Institute Website Guidance for reporting in accordance with client money regulations issued by M47 Financial Regulator February 2004 CCABI Institute Website Chartered Accountants Reports on compilation of Historical Financial information M48 of Unincorporated Entities CCABI Institute Website 6 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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. A Personalised CPDCertificate 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
- 39. A Personalised CPDCertificate 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 To achieve completeness of ‘audit documentation’, any information, gained as a result of the provision of other services, which is used as audit evidence needs to be incorporated or cross-referenced into the audit documentation. The auditor’s assessment of his or her objectivity and independence is documented, including a description of the threats identified and the safeguards applied to eliminate or reduce the threats to an acceptable level7. The respective responsibilities of the directors (or equivalent) and the auditor are documented in an engagement letter. This is particularly important where the audit firm is involved in the preparation of the financial statements. Relatively small audit team size 29. Audits of smaller entities may be conducted by small audit teams, possibly involving the audit engagement partner working with one audit assistant (or without any audit assistants). 30. ISA (UK and Ireland) 230 explains that the audit documentation for the audit of a smaller entity is generally less extensive than that for the audit of a larger entity. Further, in the case of an audit where the engagement partner performs all the audit work, the documentation will not include matters that might have to be documented solely to inform or instruct members of an engagement team, or to provide evidence of review by other members of the team (for example, there will be no matters to document relating to team discussions or supervision). Nevertheless, the engagement partner complies with the overriding requirement described in paragraph 13 above to prepare audit documentation that can be understood by an experienced auditor, as the audit documentation may be subject to review by external parties for regulatory or other purposes. 31. However, as the size of the engagement team increases, or where more inexperienced team members are introduced, more detailed documentation may assist the team in obtaining an appropriate understanding of the entity. There may also be more reviews performed in compliance with quality control policies and procedures, although the format of documentation for these reviews is not affected by the audit team size. 32. ISA (UK and Ireland) 230 suggests that when preparing audit documentation, the auditor of a smaller entity may find it helpful and efficient to record various aspects of the audit together in a single document, with cross-references to supporting working papers as appropriate. Examples of matters that may be documented together in the audit of a smaller entity include the understanding of the entity and its internal control, the overall audit strategy and audit plan, materiality determined in accordance with ISA (UK and 7 As required by ES 1, paragraph 64, and ES 5, paragraph 37. THE AUDITING 8 PRACTICES BOARD OmniPro Education Training 37 of 105
- 40. A Personalised CPDCertificate 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 Ireland) 320, ‘‘Materiality in Planning and Performing an Audit’’, assessed risks, significant matters noted during the audit, and conclusions reached. Use of proprietary audit systems 33. Where the auditor of a smaller entity operates in a small practice, it is likely that use will be made of an audit methodology and/or audit software provided by an external supplier (proprietary systems). Proprietary systems are usually designed to deal with a wide variety of client situations. To be used efficiently and effectively, the auditor needs to think carefully about how the system should be tailored to each individual client entity. 34. Documentation of the understanding of the entity including its controls is usually embedded into proprietary systems by use of optional check lists or ‘white space’ techniques. A risk exists that less experienced staff might think that it is compulsory to comply with all elements of these systems, without tailoring the approach to the needs of the particular entity, and thereby prepare excessive, and often irrelevant and costly, audit documentation. Proper training and supervision of junior staff and communication within the engagement team can help to overcome this risk. 35. Even where a proprietary system is used, a free-form planning memorandum can be a good way of documenting the auditor’s understanding of the business and the basis for the risk assessments made. Such a memorandum can then easily be updated from one year to the next. Audit documentation requirements in ISAs (UK and Ireland) 36. In addition to ISA (UK and Ireland) 230, several other ISAs (UK and Ireland) set out further specific audit requirements and guidance in relation to audit documentation. 37. Taking these requirements into account, the key matters to document are summarised in the table in Appendix A to the extent they apply in the context of the engagement. The requirements are summarised by audit phase: general; engagement acceptance and continuation; planning the audit; procedures performed in response to assessed risks; completion and review of the audit; and the auditor’s report. 38. Where requirements are clearly not applicable, there is no need to include any references to them in the audit working papers. For example, where the entity uses no service organisations, there is no need to include any reference to ISA (UK and Ireland) 402. THE AUDITING 9 PRACTICES BOARD OmniPro Education Training 38 of 105
- 41. A Personalised CPDCertificate 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 Assembly of the final audit file 39. ISA (UK and Ireland) 230 and ISQC (UK and Ireland) 1 also set out specific requirements and guidance in relation to the assembly of the final audit file and the confidentiality, safe custody, integrity, accessibility and retrievability and retention of engagement documentation. 40. With respect to individual engagements, ISA (UK and Ireland) 230 requires that: The auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final audit file on a timely basis after the date of the auditor’s report (paragraphs 14 and A21-A22). After the assembly of the final audit file has been completed, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period (paragraphs 15 and A23). In circumstances other than those envisaged in paragraph 138 of ISA (UK and Ireland) 230 where the auditor finds it necessary to modify existing audit documentation or add new audit documentation after the assembly of the final audit file has been completed, the auditor shall, regardless of the nature of the modifications or additions, document: (a) The specific reasons for making them; and (b) When and by whom they were made, and reviewed (paragraphs 16 and A24). Changes to documentation after the date of the auditor’s report 41. ISA (UK and Ireland) 230 recognises that in exceptional circumstances it may be necessary to change audit documentation after the date of the auditor’s report. For example, when the auditor subsequently discovers facts that existed at the date of the auditor’s report that, had the auditor been aware of them at the time, might have affected the auditor’s report. 42. When such exceptional circumstances arise, requiring the auditor to perform new or additional audit procedures or leading the auditor to reach new conclusions, the auditor is required to document: (a) The circumstances encountered; (b) The new or additional audit procedures performed, audit evidence obtained, and conclusions reached, and their effect on the auditor’s report; and (c) When and by whom the resulting changes to audit documentation were made, and reviewed (paragraphs 13 and A20). 8 Paragraph 13 of ISA (UK and Ireland) 230 addresses exceptional circumstances where the auditor performs new or additional audit procedures. THE AUDITING 10 PRACTICES BOARD OmniPro Education Training 39 of 105
- 42. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Area of documentation Illustrative approach Page Audit strategy Example 1 – Audit strategy memorandum 36 Example 2 – Audit strategy referencing 40 other documents on file Understanding the entity Example 3 – Free-form notes 42 Example 4 - Based on a checklist 46 Audit team planning meeting Example 5 – Excerpt from meeting using 51 a pre-set agenda Controls documentation Example 6 – Free-form notes 55 Example 7 – Based on a checklist and 60 systems diagrams Risk assessment Example 8 – Based on risks 64 Example 9 – Based on assertions 66 Audit working papers Example 10 – Property valuation 68 Example 11 – Going concern 70 Completion Example 12 – Evaluation of misstatements 72 identified during the audit Example relating to a different case study entity: Group audits Example 13 – Excerpt from group 74 planning memorandum THE AUDITING 35 PRACTICES BOARD OmniPro Education Training 40 of 105
- 43. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Example 1 – Audit strategy memorandum1 Client: Bulls Restaurant and Hotel Limited Year end: 31 January 20X1 Characteristics of the engagement Small private company registered in England and Wales. Family company with two non-family shareholders and a number of related party transactions during the year. Accounts are prepared under the FRSSE. Accounting services, including payroll, provided by the part-time bookkeeper. The permanent file documentation provides further information on understanding the business, the control environment and internal controls. Timing of reporting Year end is 31st January. Audit fieldwork during May. Partner to meet with directors to discuss results and accounts signed in mid- June. Significant factors Materiality Materiality for the financial statements as a whole Materiality for the financial statements as a whole has been set at £13,500. This is based on 5% of an estimated profit before tax figure2 of £270,000, which is a consistent basis to that used in previous audits. An unadjusted profit before tax figure is appropriate as there are no exceptional items affecting profit before tax and the levels of directors’ remuneration are not abnormally high. 1 Documentation requirement at ISA (UK and Ireland) 300 paragraph 12(a) and ISA (UK and Ireland) 320 paragraph 14. 2 Profit before tax has been used in this example, but other bases (for example, turnover or balance sheet totals) and other percentages may be appropriate based on the auditor’s judgment. THE AUDITING 36 PRACTICES BOARD OmniPro Education Training 41 of 105
- 44. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Lower levels of materiality for specific items Users of the accounts are the shareholders and the bank. A lower level of materiality has been set in respect of the following classes of transactions, account balances and disclosures: Transactions between the company and individual family owners (relevant to the non-family shareholders) £6,000 Performance materiality In assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures performance materiality has been set at £10,000 (and £5,000 for transactions between the company and individual family owners). This is judged to be sufficient as, on the basis of past audit errors (which have been primarily of a cut-off nature), there is a low probability that the aggregate of uncorrected and undetected misstatements will exceed the overall materiality. Internal control No past history of management override of controls. Audit staff will be briefed to remain alert to this risk. Managements’ attitude towards internal control is very positive There are particular internal controls that we can plan to rely on. These are documented in the systems information (Ref: C43). Results of previous audit No matters were identified during the previous audit to suggest a significant change in audit approach is needed. Developments in the business The audit manager held a preliminary meeting with management on 18th January. The purpose of this meeting was to: discuss the nature, timing and extent of the audit work; and enquire whether there have been any developments in the business since the last audit that may impact the audit of the current period. There have been no significant changes in the business activities since the last audit and no changes in the client’s staff. The current poor economic climate has led to a downturn in trading (turnover reduced by 10% to £2.7m), but the directors believe the THE AUDITING 37 PRACTICES BOARD OmniPro Education Training 42 of 105
- 45. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only company is still performing relatively well given the circumstances and are confident that the ability to continue as a going concern is not threatened. The Freehold property was re-valued last year. However, in light of general falls in property values since then the client believes that a significant reduction in value should be recognised in the accounts this year. Risk assessment procedures performed A preliminary analytical review of the December 20X0 management accounts was carried out (ref B34). The figures reflect a downturn in the current year’s trading levels (consistent with fall in occupancy levels). No unusual relationships were identified in gross profit figures and business appears to be continuing as normal. The significant risks are: Property valuation; Incomplete sales recording due to high volume of cash transactions. Further details on these risks and other matters giving rise to significant risks and how they will be addressed are documented in the Understanding of the Entity (Ref: AB2). Nature, timing and extent of resources allocated Paul Cox has been the audit engagement partner for the past eight years. Sarah Cole has been the audit manager since the audit for the year ended 20W7. The main audit work this year will be carried out by a student in their final year of training. The audit timetable is as follows: Planning Amend audit strategy 2 days January 20X1 Update permanent file information Prepare audit programs Stock-count Junior member of staff to attend 1 day 1 February 20X1 Final audit This will commence with the audit team 2 weeks Commencing 10 planning meeting in the office before May 20X1 transferring to the client’s premises 19 May 20X1 Manager review 21 May 20X1 Partner review Sign-off Final meeting with client for approval of Provisional date – the accounts and signature 2 June 20X1 Signing the audit report Mid-June 20X1 THE AUDITING 38 PRACTICES BOARD OmniPro Education Training 43 of 105
- 46. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Example 3 – Free-form notes of Understanding the entity4 Client: Bulls Restaurant and Hotel Limited Year end: 31 January 20X1 Nature of the entity Bulls Restaurant and Hotel Limited is a company that owns and operates a restaurant and hotel property in Manchester city centre. This property comprises a three storey building (wine bar on the ground floor, restaurant on the first floor and ballroom on the top floor) and an adjoining luxury hotel property of 10 en-suite rooms and 2 large family suites. The company qualifies as a small company: Turnover is £3 million. Balance sheet total is £3.5 million. There are 25 permanent employees and a pool of approximately 15 casual staff who are used when special events are held. The accounts have been audited for many years, despite an exemption being available prior to a property revaluation in 20X0. The directors chose to have a voluntary audit for a number of reasons. In particular, Lisa Swann (one of the shareholders) suggested it would be valuable from a control viewpoint and in order that future expansion might be eased. Once the property was reflected at its current market value in the accounts, the audit exemption was no longer available. Revenue is generated from two sources – Food and Beverage (the wine bar, restaurant and function room) (70%) and Room revenue from the hotel (30%). A high proportion of transactions are cash based, which leads to a fraud risk that revenue is understated. A local brewer supplies all alcohol and soft drinks – long established relationship. The hotel business is reliant on travel agent and internet related bookings. 4 Documentation requirement at ISA (UK and Ireland) 315, paragraph 32(b). THE AUDITING 42 PRACTICES BOARD OmniPro Education Training 44 of 105
- 47. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Industry factors Regeneration of Manchester city centre brought in a large number of competitors a few years ago. Occupancy rates of 80% and average room rate were maintained during this time but this resulted in a squeeze on margins as costs of supply increased. Customers are now demanding a higher quality dining experience. Bulls is set up to provide this, and are not planning to apply for a change in their licence in order to be able to open later (currently 11 p.m. in the wine bar, 12 midnight in the restaurant and 1 a.m. in the function suite) in order to maintain their current clientele. The business is subject to seasonal variation. This is most pronounced during December, when Christmas events increase turnover by over 100% and casual staff are employed for a large proportion of the time during this month. Regulatory factors Environmental health inspections continue to be thorough and turn up areas for improvement. National minimum wage legislation is relevant. Tax treatment of gratuity payments was under dispute, but has now been agreed by HMRC. Health and Safety at work and fire safety legislation is relevant – there are a number of hazardous environments, especially in kitchen areas. A premises licence is held for the sale and supply of alcohol and provision of entertainment. Ownership and governance Single company owned by two family shareholders with a number of other shareholders. The directors and shareholders are as follows: Shareholding Directors: Fred Bull Brother 40% Jo Giles Sister 40% Other shareholders: Terry Bull Father 10% Mark Quinn Family friend 5% Lisa Swann Family friend 5% The directors are in a dominant position. However, past experience indicates that the non-director shareholders have an active involvement in the business and their THE AUDITING 43 PRACTICES BOARD OmniPro Education Training 45 of 105
- 48. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only professional capacities (a surveyor and accountant) help to prevent the directors from being able to abuse their position. Related parties A number of large functions have been held at the hotel for family and friends of the directors in the past. These have typically been invoiced at reduced rates compared to other customers, but have not been material and payments have been received promptly. Terry Bull runs a local meat distribution company – Melville Foods. Much of the fresh meat used in the restaurant and for functions are supplied by this company, representing approximately 20% of the food costs of the company. Fixed assets The freehold property is continually refurbished in order to maintain its value. Organisational structure and financing Company originally set up with share finance and bank loans (now repaid). The company has an overdraft facility of £50,000. The maximum amount of this facility that is utilised during a year is typically £25,000. Annual meetings are held with a bank representative at which time the overdraft limit and covenants and any other loan facilities required for the forthcoming year are agreed. Accounting policies The company follows the FRSSE. The directors revalued the property last year and now need to keep this valuation up to date. Objectives and strategies and related business risks The operations have remained unchanged for a number of years, including the IT (EPOS and accounting) infrastructure. Management want to raise the standard of the restaurant and gain higher quality ratings in hotel and restaurant listings. Directors are researching the possibility of a second (rural) location: they propose to fund such expansion largely through bank finance. Measurement and review of financial performance Management review monthly management accounts prepared by a part-time bookkeeper, that include a comparison with budgets which are prepared by the directors. KPIs include occupancy, average room rate, covers served, turnover and rooms, food and beverage gross profit margins. Following a squeeze on margins a few years ago these have been steady for a number of years. Originally prepared by Sarah Cole Date June 20w8 THE AUDITING 44 PRACTICES BOARD OmniPro Education Training 46 of 105
- 49. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Sources of information referred to: discussion with Fred Bull and Jo Giles; share register; review of financial statements; management accounts; review of debtor and creditor listings; and company website (accessed on 16 June 20W8). Updated for 20X1 audit by Sarah Cole Date January 20X1 Continuing relevance of the information above confirmed by discussion on 18th January with Fred Bull and Stacey Burrows, the bookkeeper. Impact on the audit – risks of material misstatement relevant to audit for the year ended 31 January 20X1 At the Financial Statement Level 1. No pervasive risks of material misstatement have been identified. The assessment of risk at the financial statement level is ‘‘low’’. At the Assertion Level 2. Family company means related party transactions likely to occur, but may not be classified as such (R102). 3. Possible unrecorded liabilities resulting from fines and other liabilities arising from reviews by EHOs and HMRC – in the past few years there has been a potential liability relating to the tax treatment of gratuity payments (R101). 4. The directors believe that there has been a material change in the value of the property since it was re-valued last year for the first time. They will provide an estimated value for use in the accounts. This constitutes a significant risk (R103). 5. There is a high level of cash transactions leading to a potential loss through misappropriation. This constitutes a significant risk (R104). THE AUDITING 45 PRACTICES BOARD OmniPro Education Training 47 of 105
- 50. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Example 5 – Excerpt from Audit Team Planning Meeting using pre-set agenda6 Client: Bulls Restaurant and Hotel Limited Year end: 31 January 20X1 Date of meeting: 10th May 20X1 Persons in attendance Name: Paul Cox Position: PARTNER Sarah Cole MANAGER Richard Cannon SENIOR A. Susceptibility of the financial statements to material misstatements due to fraud There are two types of fraud relevant to the auditor’s considerations; fraudulent reporting and misappropriation of assets. For both types, the risk factors are further classified based on three conditions: Incentive or pressure for management or others to commit a fraud; Perceived or actual opportunity to commit a fraud, e.g. through management over- ride of controls; and Attitude, characters, culture, environment or set of ethical values that are consistent with a rationalisation by management or others to committing a fraud. The auditor should maintain an attitude of professional scepticism throughout the audit, recognising the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor’s past experience with the entity and the auditor’s belief about the honesty and integrity of management and those charged with governance. 6 Documentation requirements at ISA (UK and Ireland) 315, paragraph 32(a), ISA (UK and Ireland) 240, paragraph 44(a). THE AUDITING 51 PRACTICES BOARD OmniPro Education Training 48 of 105
- 51. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only 1. Notes of team discussion on consideration of any known external and internal factors that may result in fraud: (a) Due to the nature of the business there is a risk of cash and liquor stock theft (R104, R105). (b) Generally, culture/environment is good with internal controls in place, but audit staff need to remain alert to management override of controls. (c) Segregation of duties in place over sales with responsibilities split between restaurant manager, receptionist and bookkeeper. (d) While management are in a dominant position, two directors’ signatures are required on all cheques and non-director shareholders are actively involved in the business. (e) Purchases from and sales to related parties (directors and Melville Foods) could be made not at arms length (R102). (f) Fred Bull has complained about the amount of corporation tax and VAT the company is paying and has asked whether there are ways it could be reduced. He indicated, however, that he would not want the company to mislead HMRC deliberately and risk penalties (R106). 2. Team response to the assessed risks of material misstatement due to fraud including any additional work required (a) Addressed in audit work on sales completeness. (b) Confirm control consciousness of management by observation during the audit and be alert for management override of controls when testing journal entries and accounting estimates. Identify any transactions outside the normal course of business. (c) Ensure that split of responsibilities is maintained by observation and walkthrough tests. (d) Review Board meeting minutes to confirm attendance of non-director shareholders. (e) Review invoicing for functions held for directors (unlikely to be material) and review invoices from Melville Foods. (f) Remain alert for mis-accounting, particularly in relation to matters affecting tax, e.g. expenditure v capital. THE AUDITING 52 PRACTICES BOARD OmniPro Education Training 49 of 105
- 52. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only B. Susceptibility of the financial statements to material misstatements due to error The term ‘error’ refers to an unintentional misstatement in the financial statements, including the omission of an amount or a disclosure, such as: A mistake in gathering or processing data from which financial statements are prepared; An incorrect accounting estimate arising from oversight or misinterpretation of facts; or A mistake in the application of accounting principles relating to measurement, recognition, classification, presentation or disclosure. 1. Notes of team discussion on consideration of any known external and internal factors that may result in error (a) Large number of small transactions so generally if errors arise should be small. (b) Some manual processes, e.g. transfer of till rolls to spreadsheet, which could result in error. If material should be identified by sales review (R201). (c) Lack of preparation of debtors listing could lead to errors arising due to bad debts not being identified (R202). 2. Team response to the assessed risks of material misstatement due to error together with additional testing required (a) Generally susceptibility to error is low, subject to items b) and c) identified above. (b) Unlikely to result in material misstatement: ensure that bank reconciliation control is operating effectively. (c) Request directors to compile a year-end debtors listing and match invoices to cash received after year end. THE AUDITING 53 PRACTICES BOARD OmniPro Education Training 50 of 105
- 53. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only C. Communication with other team members The engagement partner shall determine which matters are to be communicated to engagement team members not involved in the discussion. As all team members were present at the meeting, no further communication required. OVERALL CONCLUSION (subject to points carried forward in the final notes) Specific risks of material misstatement and responses are noted above and have been recorded in risk assessment work papers. There is a limited risk of material misstatement at the financial statement level as there are few external users of the financial statements, the business is well-controlled and related parties are limited to family members. Signed: P Cox ......................................................... Date: 14th May 20X1 ............................ THE AUDITING 54 PRACTICES BOARD OmniPro Education Training 51 of 105
- 54. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Example 6 – Free-form notes of controls documentation7 Client: Bulls Restaurant and Hotel Limited Year end: 31 January 20X1 Control environment Directors’ meetings are held on a bi-monthly basis, where management accounts are reviewed and business operational matters are discussed. Non-director shareholders (including a professional accountant and surveyor) are personal friends or family of the two main directors and are invited to these meetings. A high level of reliance is placed on the part-time bookkeeper and the restaurant manager, who have been with the company for a number of years, and no significant problems with their work have been encountered in previous audits. The bookkeeper is a member of the Institute of Certified Bookkeepers. Management’s attitude to internal control is a very positive one. The two directors make a point of reviewing the records of the previous day’s sales with key staff and holding regular staff meetings to emphasise the importance of maintaining both quality and control. Risk assessment process No formal process in place. Directors have an understanding of the key risks to the business: Reputational Possible failure of health and safety systems, resulting in risks: poor reputation and possible fines or requirements for capital investment (R101). Loss of customers resulting from poor reviews or experience of ‘‘loutish behaviour’’ (R301). 7 Documentation requirement at ISA (UK and Ireland) 315 paragraph 32(b). THE AUDITING 55 PRACTICES BOARD OmniPro Education Training 52 of 105
- 55. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Financial risks: Losses due to stock shrinkage (R105). High level of cash transactions leading to potential loss through misappropriation (R104). Poor cash flow management (R302). Credit facilities given to corporate clients who are not credit-worthy (R303). Information system Food and beverage transactions are recorded on EPOS terminals in situ. Room revenue is generated from a separate hotel computer system. All revenues are totalled daily and input manually to the ACT accounting system. All systems have been in place for a number of years. ACT has been experienced at a number of other small clients in the firm. Monitoring controls Formal monitoring controls consist of: The directors review the monthly stock-take information and follow up any shrinkage with bar staff. The monthly bank reconciliation is reviewed by one of the directors. Originally prepared by Sarah Cole Date June 20W8 Continuing relevance of the information above confirmed by discussion with Fred Bull and Stacey Burrows, the bookkeeper. These monitoring controls have been found by previous audits to have operated effectively in prior years. They will be tested again this year. Internal control notes updated for 20X1 audit by Sarah Cole Date January 20X1 Impact on the audit – risks of material misstatement relevant to audit for the year ended 31 January 20X1 A high volume of cash transactions (combined with manual transfers of information from till rolls to a spreadsheet summary and then to the accounting THE AUDITING 56 PRACTICES BOARD OmniPro Education Training 53 of 105
- 56. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only system) increases the risks of inaccuracies in the sales cycles for all sources of revenue. Information system and control activities – extract from notes relevant to sales cycle This is an extract of information from the permanent audit file, which is relevant only to liquor sales in the wine bar, restaurant and function room. Liquor sales Sources of income Wine bar (40%), restaurant (35%), function room (25%) Methods of recording orders Alcoholic and soft drinks are all served from the bar areas in the wine bar, restaurant and function room. In the wine bar and function room these are dealt either: On a cash basis, where details of the drinks served are input to the EPOS system terminal and payment is made by the customer at the time of serving. On credit, where a tab is opened on the EPOS terminal and either a credit card is retained behind the bar for use in settling the account when the guests are leaving or an invoice is made up on the following day from the details recorded. In the restaurant, the orders are input to a waiter’s terminal by waiting staff and paid for by the guest at the end of the meal. Drinks are served from the bar area in accordance with what has been input to the system. Method of ensuring all sales are recorded At the end of each day (or shift), all EPOS terminal till rolls are printed. A Z-reading is taken and the hash total at the bottom of the till roll is reconciled to the previous Z-reading. Beverage sales totals are input from the till rolls to a summary spreadsheet maintained by the restaurant manager, together with an analysis of credit card and cash takings and amounts to be invoiced. THE AUDITING 57 PRACTICES BOARD OmniPro Education Training 54 of 105
- 57. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Invoices are made up for credit sales in the function room by the restaurant manager or one of the directors using the information recorded by the EPOS terminal. These are handwritten and are taken from a pad with pre-printed serial numbers. Accounting records and method of use Information on sales totals is taken from the spreadsheet maintained by the restaurant manager and input directly to the ACT accounting system on a weekly basis by the bookkeeper. At the end of each month an independent stocktake is carried out on all bar stocks (excluding hotel mini-bar stock). Closing stock values are input to the general ledger and gross profit margins monitored by the directors. Any variations in stock shrinkage from the norm are followed up with bar staff. The bookkeeper reconciles the cash and credit card receipts with cash banked and receipts recorded on the bank statements. She also maintains a file of all unpaid invoices from the function room and where cash is received in the post, this is matched to these invoices. The file is reviewed on an ad hoc basis by one of the directors and clients are chased for payment where appropriate. Impact on the audit – risks of material misstatement R104 There is a fraud risk arising from the possible misappropriation of cash when cash sales are not input to an EPOS terminal. This is a significant risk. In relation to this, the independent monthly stocktake provides a mitigating control by highlighting stock shrinkages that are outside the norm (follow up of shrinkages has led to staff being dismissed in the past). This control will be tested. R201 A high volume of cash transactions (combined with manual transfers of information from till rolls to a spreadsheet summary and then to the accounting system) increases the risks of inaccuracies in the sales cycle. THE AUDITING 58 PRACTICES BOARD OmniPro Education Training 55 of 105
- 58. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only R202 No debtors listing is maintained and follow up of unpaid invoices is done on an ad hoc basis. This leads to a risk that bad debts are not provided for – past experience suggests a reluctance to accept that particular debts are ‘‘bad’’. Christmas and New Year functions are material and some debtors relating to this period are still outstanding two months after the year end. R203 Deposit invoices raised in advance of a function may be treated as sales at the time of invoicing rather than the date of the function, creating a possible cut-off error. Originally prepared by Sarah Cole Date June 20W8 Continuing relevance of the information above confirmed by discussion with Fred Bull and Stacey Burrows, the bookkeeper. Updated for 20X1 audit by Sarah Cole Date January 20X1 THE AUDITING 59 PRACTICES BOARD OmniPro Education Training 56 of 105
- 59. Risk of material Significant Mitigating Likelihood of Assertions Audit procedures Audit misstatement risk? internal risk resulting impacted program These procedures are identified controls in material reference specific to this example misstatement only. They are not exhaustive and will not necessarily be useful in relation to similar risks in other circumstances. R202 – Bad debts Med Debtors: From client debtor not provided for or Valuation listing match invoices written off to cash received after year end or include in discussion of bad debts. R203 – Sales not Med Sales: Check sample of recorded or re- Completeness, function diary entries corded in wrong Cutoff back to invoices to Example documentation: for illustrative purposes only period confirm sales re- Debtors: corded. Completeness Check sample of OmniPro Education Training invoices back to function diary to confirm sales recorded in the correct period. Practice Note 26 (Revised) PRACTICES BOARD THE AUDITING December 2009 65 57 of 105 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.
- 60. 66 Beverage sales and debtors cycle SALES and TRADE DEBTORS – RISK ASSESSMENT and AUDIT APPROACH SUMMARY As a result of the issues considered during the planning, note here the risks of material misstatement associated with the audit of this section: THE AUDITING R104 (H) Due to the nature of the business there is a fraud risk of cash pilferage. Cash sales might not be input to EPOS at the point of sale and cash relating to these PRACTICES BOARD Practice Note 26 (Revised) unrecorded sales stolen by bar and restaurant staff. This is a significant risk. R201 (M) Manual transfer of amounts from invoices, till rolls and spreadsheets could create errors. R202 (M) No debtors listing is maintained by the client with follow up of unpaid invoices not done systematically and bad debts not provided for. December 2009 R203 (M) Sales recorded in wrong period Assertion Risks of Control in operation Tests of control Substantive procedures material (programme reference) (programme reference) misstatement Example documentation: for illustrative purposes only These procedures are specific to this example only. They are not exhaustive and will not necessarily be useful in relation to similar risks in other circumstances. Sales Occurrence None Completeness R104 –re. liquor Monthly independent stocktake and Review records of monthly Check sample of function diary OmniPro Education Training sales review by directors will pick up stocktakes. Ascertain follow up entries back to invoices to confirm significant amounts of pilferage. taken where margins out of line with sales recorded. expectation (TC 3). Ireland) 240, paragraph 44(b) and 45(a), ISA (UK and Ireland) 330, paragraph 28(a) and (b). 10 Documentation requirements at ISA (UK and Ireland) 315, paragraph 32(c) and (d), ISA (UK and Example 9 – Risk assessment based on assertions10 58 of 105 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.
- 61. Assertion Risks of Control in operation Tests of control Substantive procedures material misstatement These procedures are specific to this example only. They are not exhaustive and will not necessarily be useful in relation to similar risks in other circumstances. R201 Monthly bank reconciliation will Review monthly bank For sample of dates, check sales identify cash received but no sale reconciliations and ensure totals from till rolls and invoices posted outstanding items clear during to spreadsheets and accounting following month (TC 6). system (ST 4) Accuracy R201 See above – monthly bank See above – review monthly bank See above – test postings for a reconciliation reconciliations sample of dates Cut off R203 Pre-numbered function room Check sample of invoices back to invoices function diary to confirm sales recorded in the correct period (ST 7) Classification R201 See above – monthly bank See above – review See above – test postings reconciliation monthly bank for a sample of dates reconciliations Debtors Existence None Rights and None Example documentation: for illustrative purposes only obligations Completeness R104, R201, See above – independent stocktake See above – review records of See above – test postings for a R203 and gross profit review, monthly monthly stocktakes and review sample of dates and check sample OmniPro Education Training bank reconciliation and pre- monthly bank reconciliations of invoices back to function diary numbered invoices Valuation and R201 See above – monthly bank See above – review monthly bank See above – test postings for a allocation reconciliation reconciliations sample of dates Practice Note 26 (Revised) R202 None From client debtor listing match invoices to cash received after year end or include in discussion of bad debts (DT 5) PRACTICES BOARD THE AUDITING December 2009 67 59 of 105 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.
- 62. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Example 10 – Audit working paper: property valuation11 Client: Bulls Restaurant and Hotel Limited Year end: 31 January 20X1 Prepared by: Sarah Cole Date: 18 May 20X1 Reviewed by: Paul Cox Date: 21 May 20X1 The freehold property was valued by XYZ surveyors last year at £2.5 million. Once revalued, the FRSSE requires a fixed asset to be carried at its market value at the balance sheet date. As property prices generally have reduced over the past year, the likely decline in the value of the property has been identified as a significant risk. Management confirm that they believe that there has been a material change in value this year, which should be recognised in the accounts. Mark Quinn, a shareholder who is a qualified surveyor (confirmed with current list of RICS members) with a practice specialising in commercial property, has provided an estimate of the current value at £2 million. This was arrived at on the basis of his knowledge of a similar type of hotel property located outside the Manchester city centre being sold for £2.3 million in December 20X0. It was adjusted downwards due to that property being in better condition and slightly larger. The reduction in value of £500,000 has been properly accounted for and taken to the statement of recognised gains and losses in the accounts as it reverses a previous revaluation upwards. While FRS15 requires an internal revaluation to be reviewed by an external qualified valuer, the FRSSE requires a revaluation to be undertaken by an experienced valuer and does not specify an external valuation. Bulls have therefore not engaged an external expert to advise on market value. Work undertaken during the audit: 1. The basis for this estimate is set out in working paper E12. We have checked the sale price of the Manchester property, reviewed the sales particulars and discussed the assumptions underlying this estimate with Mark and they seem reasonable. Alternative assumptions were also discussed. 11 Documentation requirement at ISA (UK and Ireland) 540, paragraph 23. THE AUDITING 68 PRACTICES BOARD OmniPro Education Training 60 of 105
- 63. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only 2. A range of possible values for the property was constructed from the following sources of information: Source of information Possible valuation UK Quarterly Property UK commercial property fell by 24% £1.9 million Index in 20X0 XYZ Surveyors report 12% fall in value for commercial £2.2 million on local property mkt. property in Manchester over past year Christie Co survey of 17.5% fall in values of hotels, £2.06 million hotel and pub property restaurants and pubs in North of market England to September 20X0 3. Disclosures made in the accounts in connection with the fixed asset valuation and the movement on the revaluation reserve were reviewed. These make it clear that there is estimation uncertainty and that the current value is based on an internal estimate. 4. The valuation of the property will be included as a specific item in the written representation. Conclusion: 1. The market value falls within a reasonable range. 2. Even though the valuation has been performed by a shareholder director, there is no evidence to suggest that the valuation is biased. 3. There is adequate disclosure of the estimation uncertainty in the financial statements. THE AUDITING 69 PRACTICES BOARD OmniPro Education Training 61 of 105
- 64. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Example 11 – Audit working paper: going concern12 Client: Bulls Restaurant and Hotel Limited Year end: 31 January 20X1 Prepared by: Richard Cannon Date: 18 May 20X1 Reviewed by: Sarah Cole Date: 19 May 20X1 Trading during the current economic conditions has been 10% down on previous years, although Bulls have been able to reduce costs. Management have prepared a cash flow forecast for the 12 months from the year end date (1 February 20X1 to 31 January 20X2) – file ref. L12. This exercise involved the shareholder, Lisa Swann (who is an accountant), in addition to Fred and Jo. It formed the basis of a discussion with the company’s bankers at a meeting in February X1 where the overdraft facility was agreed for a further year to 28 February 20X2. Work undertaken during the audit: 1. Discussed with management their plans for the company for the 18 months to 31 July 20X2 (more than 12 months after the expected date of approval of the accounts). They expect that there will be no further deterioration in trading levels, meaning that the maximum overdraft during the period will be £30,000, which is £20,000 short of the current overdraft facility. Budgets prepared by management in the past have proved to be reasonably accurate. 2. Reviewed figures included in the cash flow forecast for 12 months to 31 January 20X2. These have been prepared on the basis of: Trading at January 20X1 levels continuing until late in 20X1, when a slow recovery is assumed. Gross profit margins being maintained at recently experienced levels. Previously planned expansion being delayed until late in 20X2 at the earliest. 3. Compared cash flow forecasts for the first three months of the year to actual results. No significant differences noted in turnover and gross profit margins. 12 Documentation requirement at ISA (UK and Ireland) 230 paragraph 8(c) – significant matters arising during the audit. THE AUDITING 70 PRACTICES BOARD OmniPro Education Training 62 of 105
- 65. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only 4. Obtained a copy of the letter to the company agreeing the overdraft facilities to 28 February 20X2 (ref. F40). The directors have stated that they have no reason to believe that the overdraft facility (which is not dependent on the property valuation) will not be successfully renegotiated in February 20X2. Conclusion: Although the current economic outlook is uncertain there are no indications that Bulls will not continue in operational existence for at least one year from the date of approval of the accounts. Disclosures made in the financial statements in connection with this matter are clear and understandable. THE AUDITING 71 PRACTICES BOARD OmniPro Education Training 63 of 105
- 66. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Example 12 – Evaluation of misstatements identified during the audit13 Client: Bulls Restaurant and Hotel Limited Year end: 31 January 20X1 All errors identified during audit testing are documented within the relevant audit papers. Misstatements below £100 are considered to be clearly trivial and have not been recorded below. Schedule of audit adjustments Adjusted Errors which have been adjusted in the financial statements have a combined net effect of increasing profit by £995: Balance Sheet Profit loss Cross Dr Cr Dr Cr reference £ £ £ £ 1 Profit and loss – administrative 350 D24 expenses Creditors – accruals 350 Being under-accrual for electricity 2 Creditors – taxation 2,345 L65 Profit and loss – taxation 2,345 Being adjustment to tax computation 3 Profit and loss – administrative 1,000 D41 expenses Creditors – accruals 1,000 Being under-accrual for liquor licence fine Impact on profit – increase 995 13 Documentation requirement at ISA (UK and Ireland) 450, paragraph 15. THE AUDITING 72 PRACTICES BOARD OmniPro Education Training 64 of 105
- 67. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Unadjusted The following error was also identified during our audit work. Balance Sheet Profit loss Cross Dr Cr Dr Cr reference £ £ £ £ 1 Profit and loss – administrative 5,000 F33 expenses Debtors – trade debtors 5,000 Being unprovided amount on disputed debt Impact on profit for the year – 5,000 decrease When the bad debt was discussed with Fred Bull, there was a difference of view about the recoverability of this debtor balance and he decided not to adjust for it within the financial statements. We consider this to be over-optimistic. However, the impact is not material to the financial statements and the unadjusted misstatement from last year in respect of holiday pay (£3,580) has reversed through the profit and loss account this year, so mitigating the current year impact. A written confirmation that the directors do not wish to make an adjustment to the financial statements in this respect and their reasons for not doing so are included in the letter of written representation (ref P13). Overall conclusion Uncorrected misstatements are not material, either individually or in aggregate. THE AUDITING 73 PRACTICES BOARD OmniPro Education Training 65 of 105
- 68. A Personalised CPDCertificate 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 Example documentation: for illustrative purposes only Example 13 – Extract from Group planning memorandum14 This is an example for a different company to that illustrated elsewhere in this Practice Note. Although the group is small, they have chosen to produce group accounts and to have these audited although not all the subsidiaries need to be audited. Group audit approach Group materiality is set at £22,500. Performance materiality for the group accounts is £20,000 and materiality for the subsidiary audits is £15,000. We will audit the parent company’s holdings of investments in the subsidiaries to a materiality of £15,000. The approach for each of the subsidiary companies is set out on the following page. 14 Documentation requirement at ISA (UK and Ireland) 600, paragraph 50(a) and (b). THE AUDITING 74 PRACTICES BOARD OmniPro Education Training 66 of 105
- 69. Significant Component Revenue – Profit – Individual Significant Type of work Auditors Extent of involvement £m £’000 financial risks significance Sub 1 2.0 100 [ Full audit to Network Phone call at planning stage to materiality of firm component management to £15,000 understand developments in the business. Phone network firm at planning stage to discuss and agree risk assessment. Request memorandum from other audit firm regarding audit findings in respect of significant risks. Sub 2 2.5 300 [ Full audit to Other Meet component management at materiality of auditors planning stage. £15,000 Meet other audit firm at planning stage to consider risks and review firm’s risk documentation. Review working papers at year end. Example documentation: for illustrative purposes only Sub 3 0.5 (10) Review of Group – financial OmniPro Education Training statements Sub 4 0.4 20 [ Audit of Group – investments Sub 5 0.1 10 Analytical Group – procedures at Practice Note 26 (Revised) group level 5.5 450 PRACTICES BOARD THE AUDITING December 2009 75 67 of 105 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.
- 70. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Contents • Planning Summary • Matters Forward • Acceptance Planning Communications • Section 1 Overall Engagement Reporting Requirements • Section 2 Acceptance Continuance (including Ethical Consideration) • Section 3 Knowledge of Entities A. Industry, Regulatory and Other External Factors B. Nature of the Entity C. Measurement Review of Financial Performance D. Objectives and Strategies and Related Business Risks E. Groups Consolidations • Section 4 Internal Controls and Systems • Section 5 Audit Risk Assessment • Section 6 Audit Accounting Estimates • Section 7 Fraud • Section 8 Materiality • Section 9 Setting Sample Sizes • Section 10 Specific Risk Assessment • Section 11 Other Matters A. Related Parties B. Going Concern C. Events after the Balance Sheet date • Section 12 Nature, Timing Extent of Audit Procedures A. Audit file set up/Assignment Approach/Staff, Budgets B. Use of Independent Experts C. Stock Take Attendance/External Confirmations D. Use of Service of Organisations E. Independent Partner Review F. External consultation KEY TO NOTATIONS BELOW WP Working Paper CAF Current Audit File ACM Audit Conclusion Memo APM Audit Planning Memo Page 1 © OmniPro OmniPro Education Training 68 of 105
- 71. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Disclaimer This Audit Planning Memo is provided to give guidance in relation to the format and contents of a typical Audit Planning Memo under the relevant auditing standards. It does not purport to give definitive professional advice in any form. It should, accordingly, not be relied upon as such. Auditors using these Work Programmes and any programmes or templates, should tailor the approach and the evidence gathered to comply with Generally Accepted Accounting Practices in Ireland in accordance with the Accounting Standards Board, International Standards on Auditing (UK Ireland) and Company Law Despite taking every care in the preparation of this document OmniPro does not guarantee the accuracy or veracity of any information or opinion, or the appropriateness, suitability or applicability of any practice or procedure contained therein OmniPro does not take any legal responsibility for the contents of this manual and the consequences that may arise due to any errors or omissions. OmniPro shall therefore not be liable for any damage or economic loss occasioned to any person acting on, or refraining from any action, as a result of or based on the material contained in this publication All areas of this document need to be specifically tailored to each individual client Page 2 © OmniPro OmniPro Education Training 69 of 105
- 72. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Planning Summary (REF ISA 300) • Planning Checklist @ WP Ref B 1 has been completed. • The Engagement Requirements for this assignment are set out in Section 1 below. There are no specific regulatory requirements arising from the decision to retain the engagement. • Acceptance Continuance procedures have been dealt with in Section 2 below. We have not identified any reasons at the outset for not accepting/continuing the engagement. • Compliant Accountant Co Independence and Objectivity has been assessed and no perceived issues have arisen/and while some potential independence threats were noted, safeguards have been put in place to eliminate this threat (see Section 2 below). All other ethical considerations have been dealt with in Section 2 also. • The general profile of the client has been detailed below in Section 3. A full company search has been obtained and is included on the Permanent Section of this file @ WP Ref P 6 • Relevant laws and regulations have been assessed below in Section 3. • Internal Controls were addressed at Section 4. • The overall risk assessment has been documented in Section 5 with the Specific Risks identified in Section 9 below. The risk associated with the engagement will result in the testing being tailored. • Section 6 deals with our approach regarding Fraud while Section 10 deals specifically with Related Parties, Going Concern and Post Balance Sheet Events • Materiality and Sample Size Selection are addressed at Section 8 9 respectively. • The Nature, Timing Extent of Audit Procedures is summarised in Section 11 below specifically extensive substantive audit testing will be performed on transactions throughout the year and combined with the extensive balance sheet substantive testing performed sufficient appropriate audit evidence should be obtained. • Matters Brought Forward from our previous year’s work has been outlined below. While all formal communications with our client have also been summarised below. • Knowledge gained by Engagement Partner for the Entity which is relevant to the audit and directing the engagement team has been documented on B8. • Any significant changes to our audit plan have been documented on B8. New Engagements Only (REF ISA 300, ISQC1) • The client has been assessed and identified for money laundering purposes using Compliant Accountant Co anti-money laundering procedures and identification process as set out in the internal control procedures manual. • Professional clearance has been obtained and the previous auditor identified no issues of concern. The previous year’s financial statements contain an unqualified audit opinion and there are no obvious reasons why we should not accept this engagement. The letter of professional clearance is on the Permanent Section of this file @ WP Ref P 7 Matters Brought Forward • The following files were reviewed on today’s date. There are no points forward or issues for consideration on; o Previous years audit file o Audit Findings from previous year audit file o Audit Opinion o Related Parties o Significant Deficiencies in Systems and Controls o Significant Accounting Estimates Page 3 © OmniPro OmniPro Education Training 70 of 105
- 73. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY o Company secretarial file o Correspondence file o Tax files o Permanent Audit File o Management Accounts File Acceptance Planning Communications (REF ISA 200, ISA 210, ISA 260, ISA 300, ISA 600, ISQC1) Letter of Engagement • A tailored letter of engagement reflecting the requirements of the client and the specific nature of the engagement in hand has been issued. A signed copy can be found @ WP Ref B 6. Audit Planning Letter • Arising out of our engagement team meeting, the client planning meeting and our acceptance and continuance procedures an audit-planning letter has been issued to the client. A signed copy can be found @ WP Ref B 7 • The Timescale has been agreed ( WP Ref B9) and in our Planning letter (WP Ref B7) Other verbal communications and meetings, which will be, recorded include:- • Audit planning meeting with client (WP Ref B 9) Internal Meeting with Engagement Partner and audit Staff which will be recorded 2 weeks prior to the audit being undertaken • Audit Planning Meeting (WP Ref B 8) Those Charged with Governance • We as auditors have determined the appropriate person(s) within the entity’s governance structure with whom to communicate at (WP Ref B9) When all of Those Charged with Governance are Involved in Managing the Entity In some cases, all of those charged with governance are involved in managing the entity, for example, a small business where a single owner manages the entity and no one else has a governance role. In these cases, if matters required by this ISA are communicated with person(s) with management responsibilities, and those person(s) also have governance responsibilities, the matters need not be communicated again with those same person(s) in their governance role. The auditor shall nonetheless be satisfied that communication with person(s) with management responsibilities adequately informs all of those with whom the auditor would otherwise communicate in their governance capacity. The practice has open channels of communication with the client. The timeline for finalising the financial statements and issuing an audit report is set out above in Section 11. Together with the formal communications as outlined above the following formal client communications will also be documented and recorded:- • Letter of Representation (WP Ref A2) • Audit findings letter (WP Ref A12) • Minutes of Audit closing meeting with client (A 11) Page 4 © OmniPro OmniPro Education Training 71 of 105
- 74. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY All other client communications which are relied upon in the course of the audit or which are required to ensure good communication with those charged with governance will be recorded on an ad-hoc basis as the engagement progresses Clarification and Distinction between Management AND Those Charged with Governance – ISA 260 Management The person(s) with executive responsibility for the conduct of the entity’s operations. For some entities in some jurisdictions, management includes some or all of those charged with governance, for example, executive members of a governance board, or an owner-manager. Those Charged with Governance The person(s) or organisation(s) (for example, a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process. For some entities in some jurisdictions, those charged with governance may include management personnel, for example, executive members of a governance board of a private or public sector entity, or an owner- manager. Section 1 Overall Engagement Reporting Requirements (REF ISA 200, ISA 220, ISA 300, APB ES, ISQC 1) • There are no specific statutory responsibilities that affect this audit other than to perform the audit in accordance with the ISAs, the financial reporting framework and the Irish Companies Acts 1963 to 2009. (Add other laws and regulations where relevant e.g. Solicitors Regulations) • There are no specific 3rd party reporting requirements for this client to regulators or third party but the following obligations will be considered as part of the audit:- o Money Laundering Reporting (Money Laundering Terrorist Financing) Act 2010 (Section 25) o Reporting to ODCE under the CLEA 2001 o Criminal Justice Theft Fraud Offences Act 2001 Criminal Justice (Terrorism Offences) Act 2005 o S1079 Taxes Consolidation Act • There are no specific regulatory requirements arising from the decision to retain the engagement • We require 3 months notice prior to undertaking the audit, the engagement partner will decide on the best course of action where the timescale is less. In accordance with ISA 200 we will • Comply with relevant ethical requirements (a) Integrity (b) Objectivity (c) Professional competence and due care (d) Confidentiality and (e) Professional behaviour, including those pertaining to independence, relating to financial statement audit engagements • Plan and perform the audit with professional scepticism recognising that circumstances may exist that cause the financial statements to be materially misstated • Exercise professional judgment in planning and performing an audit of financial statements • Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and thereby enable us to draw reasonable conclusions on which to base the auditor’s opinion • Comply with all ISAs (UK and Ireland) relevant to the audit. An ISA (UK and Ireland) is relevant to the audit when the ISA (UK and Ireland) is in effect and the circumstances addressed by the ISA (UK and Ireland) exist • Have an understanding of the entire text of an ISA (UK and Ireland), including its application and other explanatory material, to understand its objectives and to apply its requirements properly. • Determined that there are no other audit procedures in addition to those required by the ISA’s necessary. Page 5 © OmniPro OmniPro Education Training 72 of 105
- 75. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Section 2 Acceptance Continuance (including Ethical Considerations Staffing) (REF ISA 200, ISA 210, ISA 220, ISA 300, ES, ISQC1) ES1 (revised) - Integrity, objectivity, and independence, ISA 210, ISA 220 • The objective of the auditor is to accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through: o Establishing whether the preconditions for an audit are present; and o Confirming that there is a common understanding between the auditor and management and, where appropriate, those charged with governance of the terms of the audit engagement. • Regarding preconditions we confirm that o The financial reporting framework to be applied in the preparation of the financial statements is acceptable, the client prepares the financial statements in accordance with Irish GAAP (current FRSs and SSAPs) o We have obtained the agreement of management through a signed Letter of Engagement @ WP Ref B 6 that they acknowledge and understand their responsibility: For the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation; For such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and To provide the auditor with: • Access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters; • Additional information that the auditor may request from management for the purpose of the audit; and • Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence • We have confirmed that there is a common understanding between the auditor and management/those charged with governance of the terms of the audit engagement during our Audit Planning Meeting with those charged with governance as documented @ WP Ref B 9. • We do not expect management or those charged with governance to impose a limitation on the scope of our work in the terms of our proposed audit engagement which could result in a disclaimer of opinion on the financial statements. However should such a limitation of scope arise we will consider our position and the terms of the audit engagement as outlined in the signed Letter of Engagement • The Letter of Engagement @ WP Ref B6 outlines the expected form and content of any reports to be issued by the auditor and a statement that there may be circumstances in which a report may differ from its expected form and content. • As a small firm with less than 3 responsible individuals an informal discussion has been held between the Compliant Partner and his senior staff in relation to the potential ethical issues as part of the internal engagement team planning meeting as documented @ WP Ref B 8 • A detailed time budget has been prepared on WP Ref B 5 • The audit firm has established policies and procedures (ISQC1) which require partners and employees of the firm, including those providing non-audit services to an audited entity or its affiliates, do not take decisions that are the responsibility of management of the audited entity on WP B3 and B9. • The audit firm has established policies and procedures (ISQC1) to require persons in a position to influence the conduct and outcome of the audit to be constantly alert to circumstances that might reasonably be considered threats to their objectivity or the perceived loss of independence and, where such circumstances are identified, to report them to the engagement partner/ethics partner, file ref B8 A11.1. • The engagement partner is satisfied that the audit staff will act in a professional and courteous manner and any acts of unprofessional behaviour will be dealt with in the audit firm’s disciplinary process. Page 6 © OmniPro OmniPro Education Training 73 of 105
- 76. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY • The engagement partner and staff will remain strictly confidential in relation to the information gathered during the course of the audit. • The engagement partner and staff have ensured that the client’s information, paperwork and documentation is kept secure and that access is not gained to clients’ information by unauthorised individuals. • The Engagement partner has made the final decision on the best course of action relating to contentious/complex issues, and all correspondence relating to this has been placed on the current year’s audit file and documented accordingly, A11.1. • The engagement partner is satisfied that the engagement team, and any auditor’s experts who are not part of the engagement team, collectively have the appropriate competence and capabilities to: o Perform the audit engagement in accordance with professional standards and applicable legal and regulatory requirements; and o Enable an auditor’s report that is appropriate in the circumstances to be issued. • The engagement partner will monitor engagement performance through:- o Direction, Supervision and Performance of the audit engagement in compliance with professional standards and applicable legal and regulatory requirements. o Reviews being performed in accordance with the firm’s policies and procedures (ISQC1), and on or before the date of the auditor’s report a discussion will be held with the engagement team to ensure that sufficient appropriate audit evidence has been obtained to support the conclusions reached and for the auditor’s report to be issued, WP Ref A11.1 o Consultation on difficult or contentious matters between engagement team and others at appropriate level outside the firm A11.1 o Engagement Quality Control Review which will involve discussion of significant matters with the engagement team, and evaluating the conclusions reached in formulating the auditor’s report and consideration of whether the proposed auditor’s report is appropriate, on WP A11.1. o Differences of Opinion between the engagement team and the engagement quality control reviewer will be resolved through the firm’s policies and procedures, ISQC1. Staff Assigned to this engagement includes: Position Name Qualification Experience Partner Compliant Partner ACA Senior Compliant Staff ACA ES 2 (Revised) – Financial, Business, Employment and Personal Relationships • Overall there are no financial, business, employment or personal relationships that may affect the independence of Compliant Accountant Co. • No one employed by the audit client has been employed by Compliant Accountant Co or admitted to partnership • Neither Compliant Accountant Co or anyone closely connected with it have loans or guarantees to or from the client • There are no direct or indirect financial interests in the audit client held by a partner or somebody in a position to influence the conduct and outcome of the audit, or an immediate family member of theirs • There are no business relationships between Compliant Accountant Co and the audit client except those at arm’s length and which are immaterial to both parties • Where there are potential threats to independence these should be documented with specific safeguards outlined. • No Close family members of the partner or somebody in a position to influence has entered into a business relationship with the audit client, however should we become aware of any such relationship it will be discussed with the audit engagement partner, File Ref B8. • Compliant Accountant Co have not employed or admitted to partnership a person to undertake audit work who is also employed by the audit client or its affiliates (“dual employment”) Page 7 © OmniPro OmniPro Education Training 74 of 105
- 77. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY • Compliant Accountant Co have not entered into an agreement with the audit client to provide a partner or employee to work for a temporary period as if that individual were an employee of the audit client or its affiliates(a “loan staff assignment”) • OR have entered into an agreement for (a )short period of time that does not involve a staff or partner performing non audit services and (b) directs and supervises the work to be performed (c) will not hold a management position or exercise discretionary authority to commit the audit client to a particular position or accounting treatment. • Employee/partner – “Loan staff Employment” has not been given any role on the audit involving any function or activity that he/she performed or supervised during the assignment. • No partners or team members have joined the audit client, and OR XXXX has become director of the audit client on DD/MM/YEAR (less than 2 years the firm shall resign as auditor) or we confirm there are no significant connections between the firm and the individual. • No directors or former employees of the audit client have become employees of Compliant Accountant Co, however, should a director/former employee become an employee he/she will not be assigned to a position where he/she is able to influence the conduct and outcome of the audit for a period of 2 years following the date of leaving the audit client. Potential Threat to Independence Safeguards Implemented Page 8 © OmniPro OmniPro Education Training 75 of 105
- 78. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY ES 3 – Long Association with the Audit client Compliant Accountant Co has been auditor of this company for the last number of years (specify number of years). IF NUMBER OF YEARS IS GREATER THAN TEN THEN ADD NEXT PARAGRAPH. • In accordance with the Ethical Standards and the firms Internal Control procedures safeguards should be implemented in this situation. The firm is aware of its options under ES 3 being; o Obtaining an Independent external quality control review o Obtaining External review of the significant subjective audit issues before the audit report is signed off o 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). o Consultation on subjective matters with an independent external third party (e.g. partner under reciprocal arrangement, expert) or with the Institute before the audits signed off • To this end Compliant Accountant Co will employ OmniPro to provide independent external review as a safeguard against long association combined with performing internal peer reviews and consulting on any relevant technical issues. OmniPro will also be consulted before the audit report is signed in cases where there are significant subjective audit issues WHERE NUMBER OF YEARS IS LESS THAN TEN • The firm has no ethical issues under Ethical Standard 3 Long Association with the Audit Client. The number of years the firm is auditor to this client is reviewed in each year and in reaching the 10th year of being auditor to this company the firm will review its options of safeguards in accordance with the Ethical Standards and the firms Internal Control procedures, being; o Obtaining an Independent external quality control review o Obtaining External review of the significant subjective audit issues before the audit report is signed off o 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). o Consultation on subjective matters with an independent external third party (e.g. partner under reciprocal arrangement, expert) or with the Institute before the audits signed off • To this end Compliant Accountant Co will employ OmniPro to provide independent external review as a safeguard against long association combined with performing internal peer reviews and consulting on any relevant technical issues. OmniPro will also be consulted before the audit report is signed in cases where there are significant subjective audit issues. ES 4(Revised) – Fees Remuneration and Evaluation Policies • The estimated audit fee for the coming year of €XX,XXX represents Y% of the total practice income. The total fee income derived from this company and related companies for the year is estimated to be €ZZ,ZZZ. This represents T% of the total practice income. • There are no material outstanding fees outside the normal expected payment period in an SME practice dealing with an SME client. There are no contingency fee arrangements in place. • The objectives of the audit team does not include cross selling and their remuneration is not related to their performance or cross selling. Promotion prospects within Compliant Accountant Co do not include a fee-based success element. • There is no litigation or threatened litigation between Compliant Accountant Co and the client • No gifts or hospitality have been received from the audit client and no gifts, hospitality or sponsorship has been give to the audit client. • All partners and staff have the appropriate time and skill to perform the audit. • The total fees expected for audit and non-audit services for non-listed entity and subsidiary will not exceed 15% of the annual fee income, therefore there is no requirement to resign or not stand for reappointment. Page 9 © OmniPro OmniPro Education Training 76 of 105
- 79. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY • The total fees for both audit and non-audit services for a listed entity and subsidiary fall below 5% of annual fee income, therefore no safeguards are required. • The total fees for both audit and non audit services for non-listed entities falls between 10% and 15% of annual fee income, therefore we will arrange an external “hot” file independent review by Omnipro. ES 5 (Revised) – Non- Audit Services provided to audit clients • The Engagement Partner has been approached by Partner XXXX who is considering accepting a new engagement to provide non audit services to the audit client and its affiliates. The engagement partner is confident that there are no threats to objectivity or independence. • OR The engagement partner concludes there is a threat to objectivity and independence and the audit firm will (a) not undertake the non audit service (b) not accept or will withdraw from the audit engagement • The provision of non audit services have been communicated to those charged with governance on WP Ref B9. • The fees for non audit services in relation to listed companies is not greater than the annual audit fees, if the fees increase the engagement partner will discuss this with the ethics partner. • The audit firm does not provide audit services to a Group OR • The audit firm provides audit services to a Group, information has been made available to the Ethics Partner on a group basis for all services provided by the audit firm and its network firms to all entities of the group. COMPANY NAME is a typical small family owned and managed business. They have neither the requirement nor the financial capacity to engage separate auditors and an accountant or a tax advisor. • Describe the services provided e.g. Compliant Accountant Co. provides outsourced financial control services in the form of basic bookkeeping. Quarterly management accounts are produced based on the books and records obtained from the client. These activities of providing bookkeeping and management accounting services do not present a serious danger in terms of independence objectivity and integrity. The provision of non-audit services enables us obtain a better understanding of the client and assists us form our audit opinion due to our extensive review of transactions in preparing the accounts of the company. • Describe the accounting working provided by client e.g. The company maintains the basic books and records and records the prime entry data. They operate a simple financial control system that has controls over the flow of information, transactions and the recording of those transactions. The management ultimately make all the relevant decisions. Compliant Accountant Co uses the basic books and records provided to produce accounts and do not make any management decisions. Compliant Accountant Co effectively performs a 100% audit through their extensive accounts preparation procedures. The fact that they gather the data for accounts preparation does not constitute self-review in the opinion of Compliant Accountant Co. The basic tax services provided are purely computational rather than opinion and advisory • We consider that despite providing non-audit services to the client that none of the following threats exist to the extent that we should resign the audit engagement or cease providing non audit services:- o Self interest threat o Self review threat o Management threat o Advocacy threat o Familiarity threat o Intimidation threat Page 10 © OmniPro OmniPro Education Training 77 of 105
- 80. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY ES - PASE (Provisions Available to Smaller Entities) REVISED In the Republic of Ireland for the purposes of the Ethical Standards a Small Entity is • An unlisted company and meets two or more of the following requirements o not more than €7.3million in turnover o not more than €3.65million balance sheet total o not more than 50 employees • Any charity with an income less than €7.3million • Any pension fund with less than 1000 members Any other entity, such as a club or credit union, which would be a small entity if it were a company • Based on the above information the company is entitled to avail of the PASE and will make the appropriate disclosures in the auditor report and notes to the financial statements. • As a company that is entitled to avail of the PASE when providing non-audit services for a small entity audit client the audit firm is not required to apply safeguards to address a self-review threat provided: o The audit client has informed management” o Compliant Accountant Co extends cyclical inspection of completed engagements for quality control purposes Page 11 © OmniPro OmniPro Education Training 78 of 105
- 81. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY • Compliant Accountant Co has not applied specific safeguards on the basis that the client does have informed management who are capable of making the relevant decisions. Compliant Accountant Co further complies with the provisions by availing of the services of OmniPro and performing external cold file reviews on an extended cyclical annual basis. • Compliant Accountant Co have decided to engage the use of an outside reviewer by availing the services of Omnipro to conduct a “hot” file review in order to reduce the threat of independence to an acceptable level, file ref B3. • Compliant Accountant Co confirm that (XYZ) a former partner of this firm is now a director of this company (XXX Ltd), XYZ was appointed director on DD/MM/YEAR, file ref B3. OR • Compliant Accountant Co confirm that no partners of this firm have been appointed director of this (XXX Ltd), file ref B3. Summary • We have completed the Acceptance of Appointment or Re-Appointment Checklist @ Ref B 3 and no other issues have been identified. • As engagement partner of this assignment I am satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and audit engagements have been followed and specifically o There are no relationships or circumstances which affect our independence in forming an audit opinion on this engagement that have not been addressed by the safeguards in place and communications with those charged with governance of the company. As auditors we are able to continue giving an objective audit opinion as there are no significant subjective issues. If any subjective issues arise on this client the appropriate steps will be taken and if necessary external advice will be obtained OR o I have documented all the threats to independence and objectivity and safeguards implemented • I am satisfied that there are no reasons why we should not accept appointment/re-appointment as auditors to this client. • Despite the fact Compliant Accountant Co have availed of the exemptions available to smaller entities Compliant Accountant Co applies safeguards to ensure that independence is maintained by extending the cyclical inspection of audit engagements, through “Hot” and “cold” file reviews. • We have communicated any issues in relation to accepting or continuing this appointment with those charged with governance by way of our audit-planning letter on Ref B7 and during our Audit planning meeting @ WP Ref B 7. • We have considered last year’s audit opinion and we expect to issue a qualified/unqualified audit opinion on the current year’s audit and have considered any imposed limitations of scope, @ WP Ref B 8. • We have discussed with the audit staff any knowledge which will be relevant to the current audit @ WPREF B8. Page 12 © OmniPro OmniPro Education Training 79 of 105
- 82. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Section 3 Knowledge of the Entity (REF ISA 315, ISA 250(A), ISA 250(B)(if applicable, ISA 600) A. Industry, Regulatory and Other External Factors: (REF ISA 315) The Applicable Financial Reporting Framework • The financial statements for this company are prepared under the FRSs and SSAPs. Compliant Accountant Co draft the financial statements based on the quarterly management accounts produced from the information presented by the client and any associated audit adjustments. • There are no significant areas, which would give rise to any risks. The accounting policies adopted by the company are standard policies for a company of it's size. There are no complex or unusual transactions, which would require any specific accounting treatment. Industry conditions THIS SECTION NEEDS TO BE TAILORED SPECIFICALLY TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A SUPERMARKET e.g. location and competition will have a particular impact on the industry conditions • The company operates in the highly competitive highly populated supermarket industry where there are low barriers to entry and constant downward pressure in relation to price in particular with the emergence of the ALDI/LIDL brands in the Irish market. The current economic trends in Ireland and potential increase competition predicted over the coming years in the sector may give rise to increased pressure on the company to remain competitive and profitable. Regulatory environment Compliance with Laws and Regulations (REF ISA 250) (REF ISA 250B (If applicable)) THIS SECTION NEEDS TO BE TAILORED SPECIFIC TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A SUPERMARKET • The company is a private company limited by shares and partakes in a non-regulated trade. Apart from the standard laws and regulations as laid out by company law, tax law and the general laws and the land the regulatory environment does not require any specific consideration in accordance with ISA 250. • All the relevant laws and regulations are listed hereunder:- o Companies Acts 1963 - 2009 o Tax Legislation o Employment law o Health Safety o Environmental Health o Fire Inspections o Food Safety including compliance with the following o Food Safety Authority of Ireland Act, 1998 o EN ISO 22000:2005 ‘Food Safety Management Systems’ o European Communities (Hygiene of Foodstuffs) Regulations 2006 (S.I. No. 369 of 2006) o Licensing Acts including the Intoxicating Liquor Act 2008 (only applicable in cases where the Supermarket sell alcohol) o Public Health (Tobacco) (Amendment) Act 2004/ Public Health (Tobacco) Act, 2002 Page 13 © OmniPro OmniPro Education Training 80 of 105
- 83. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY • The laws and regulations were discussed with the clients as part of the audit- planning meeting as recorded on WP Ref B 9. • Documentation from regulatory authorities will be reviewed to assess compliance • We will review the legal expenses and correspondence during the year and trace to supporting documentation and obtain relevant explanations.. • Based on our previous knowledge and background to the company material breaches are not expected but if any are detected they will be considered as part of the ACM on WP Ref A 3. • We will obtain sufficient appropriate audit evidence regarding compliance with the provisions of those laws and regulations generally recognized to have a direct effect on the determination of material amounts and disclosures in the financial statements. • We have identified relevant laws and regulation which are potentially material or are not potentially material, below, testing/inspection done to demonstrate compliance Laws Regulation Identify/Inspect Areas of Non Potentially Material and or Not Compliance Potentially Material • Employment Law • Collusion • Employment Law • Forgery • Tax Legislation • Deliberate failure to record transactions • Co. Act • Management override of controls • Health Safety and or • Investigations by regulatory Environmental Health organizations and government departments or payment of fines or penalties • Tax Legislation • Sales commissions or agent’s fees that appear excessive in relation to those ordinarily paid by the entity or in its industry • Purchasing at prices • Tax Legislation significantly above or below market value • Tax Legislation • Unusual payments in cash • Tax Legislation • Unusual transactions with companies registered in tax havens • Employment Law • Unauthorized transactions or improperly recorded transactions Where non compliance has been identified or suspected the auditor will:- • Obtain an understanding of the nature of the act and the circumstances in which it has occurred • Obtain further information to evaluate the possible effect on the financial statements • Discuss the matter with management and where appropriate those charged with governance, where those charged with governance do not provide sufficient information that supports that the entity is in compliance with laws and regulations and, in the auditor’s judgment, the effect of the suspected non-compliance may be material to the financial statements, the auditor will consider legal advice. • Evaluate the effect of the lack of sufficient appropriate audit evidence on the auditor’s opinion, at WP A11A11.1 Page 14 © OmniPro OmniPro Education Training 81 of 105
- 84. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY • Evaluate the implication of non-compliance in relation to other aspects of the audit, including the auditor’s risk assessment and the reliability of written representations A11 A11.1 Other external factors currently affecting the entity’s business THIS SECTION NEEDS TO BE TAILORED SPECIFICALLY TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A SUPERMARKET • There are no other external factors currently affecting the entity’s business. The directors/ shareholders of the company clarified that they are happy with the progress and development of the company and expect that both turnover and bottom line profit will remain sustainable even in the difficult trading times being experienced at present. Government Policies • Government policies such as the Liquoring Act mentioned above have impacted on the permitted selling times for alcohol on the premises. The company is constantly keeping itself abreast of new policies being enforced by the Government and complies fully with all such policies. Environmental Factors • There are no environmental factors that have a significant impact on the company other than an increased awareness and more proactive attitude to Food Safety. General economic factors and industry conditions affecting the entity's business • With such regular stock turnover and high margins the company is not likely to suffer irrecoverable losses due to short- term swings in the market. B Nature of the Entity: (REF ISA 315) THIS SECTION NEEDS TO BE TAILORED SPECIFICALLY TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A SUPERMARKET Overall Business Operations Background The company operates as a supermarket in LOCATION under the COMPANY LABEL. It is a close company by definition and is owned and operated by the XXXXXX family. Irrespective of the company law criteria the company is a small company and operates a simple structure of management and control. The entity sources and buys its goods primarily from the COMPANY LABEL and local suppliers and ANY OTHERS IF APPLICABLE and then resells in smaller batches to its approx no of customers. Overheads are low relative to the potential mark-up and net profit margins are high. All purchases are on credit with 30-60 days credit received. All sales are on a cash basis. Location(s) The company operates from their registered office address at ADDRESS(ES) How long in existence The company has been in existence for the last SPECIFY NO OF YEARS. During the entire time of this company’s existence they have been clients of Compliant Accountant Co. Page 15 © OmniPro OmniPro Education Training 82 of 105
- 85. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Main Products Services Give detail of products by Group i.e. fruit veg, meat, dairy, dry goods, non-food, alcohol, tobacco, newspapers, confectionery and approx, % of total sales Main Suppliers DETAIL Main Customers Explanation as to whether customers are from local area, passing traffic etc Customers gone into Liquidation or Bankrupt DETAIL Competitors DETAIL MAIN COMPETITORS Board of Directors/Shareholders DETAIL Related Parties DETAIL Management and Staff experience and background including years of service and roles DETAIL Governance Reporting Structures DETAIL who is in charge, reporting structures etc How long do we know the client? DETAIL Previous Auditors DETAIL if Applicable Companies Solicitors DETAIL Companies Bankers DETAIL Other Professional Advisers DETAIL if Applicable Research Development Detail Alliances, joint ventures and outsourcing activities Detail Accounting Estimates – EG’s below on Section C Detail Page 16 © OmniPro OmniPro Education Training 83 of 105
- 86. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Foreign Currency Detail Is this company part of a Group Structure Detail C Measurement Review of Financial Performance (REF ISA 315) THIS SECTION NEEDS TO BE TAILORED SPECIFICALLY TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A SUPERMARKET BELOW Sources of Financing DETAIL AS REQUIRED-EXAMPLE BELOW The company is a cash rich business. The company is predominantly self-financing carrying a small amount of working capital finance in the form of a short-term loan and some finance leases relating to assets. The company has an excellent longstanding relationship with the bank. The company has a significant amount of un-financed assets that are available as security if a borrowing requirement arises. Financial Reporting DETAIL AS REQUIRED-EXAMPLE BELOW The financial reporting systems are not overly complicated given the size of the entity. Management accounts are prepared on a quarterly basis. The internal accountant/bookkeeper maintains the debtor’s ledger, creditor’s ledger and bank accounts. Non-routine transactions and non-transactional based postings are done under the supervision of Compliant Accountant Co on a quarterly basis, when management accounts are produced. Accounting Policies The directors select accounting policies under the supervision of the Compliant Accountant Co in accordance with FRS 18. Accounting Estimates Events and Conditions considered:- • Provision for doubtful debts • Stock Obsolescence • Warranty Obligations • Depreciation method or asset useful life • Carrying value of Investments • Outcome of long term contracts • Costs arising from litigation • Share Based payments • Financial Instruments not traded in an active and open market Page 17 © OmniPro OmniPro Education Training 84 of 105
- 87. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Investments DETAIL AS REQUIRED-EXAMPLE BELOW The company does not have an aggressive investment policy and the directors build their wealth outside the company and through their executive pension schemes. The investments held were originally purchased 15 years ago to establish a purchasing co-operative among businesses operating in the sector and have since increased significantly in value. It is not likely that the investment will be disposed of in the near future and the investments held are immaterial when the total assets held are assessed. The principal investment made in recent years is the building it purchased to act as it's head office and storage yard during the year. There has already been significant capital appreciation in the value of these premises due to the re- designation of the surrounding lands to mixed commercial and retail Measurement and review of the entity’s financial performance The company measures and reviews its performance by maintaining, debtors, creditors and bank control accounts and producing quarterly management accounts within 10 days of the months end. The directors are very involved in the day-to-day operation and manage and review key performance indicators on an ad-hoc basis. EXAMPLE ONLY-AMEND AS APPROPRIATE Based on a review of the companies performance over the years and the trends the company has been steadily expanding over recent years and based on contracts under discussion there will be a significant expansion in the next twelve months The company only prepares an annual target as part of it's strategic review. Extremely detailed variance review is performed on each product line. The company aims for DETAIL % gross margin on all products. There are no key financial performance indicators that give rise to significant indications of risk as outlined on the analytical review on Sch Ref A 6 D Objectives and Strategies and Related Business Risks: (REF ISA 315) THIS SECTION NEEDS TO BE TAILORED SPECIFICALLY TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A SUPERMARKET BELOW Existence of objectives (i.e. how the entity addresses industry, regulatory and other external factors) Given that this is a small family run company the objectives of the entity are relatively primitive. The overall objective of the business is to maximise profitability and ultimately achieve the personal objectives of the business owners. Given the nature of the business there are not necessarily any regulatory risks, which may affect the business, thus no objectives have been set in this regard. The company is also aware that other risks may exist that have an impact on the company and in response to that they are constantly on the look at for these. . Effects of implementing a strategy (particularly any effects that will lead to new accounting requirements (a potential related business risk might be, for example, incomplete or improper implementation) Page 18 © OmniPro OmniPro Education Training 85 of 105
- 88. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY There is no aspect of any of the new strategies currently being implemented that will lead to any new accounting treatments. The full extent of the strategies set by the company revolve around improving profitability, market share, consolidating the future of the company and reducing costs. Any of the changes currently being implemented or likely to be implemented in coming months are not going to pose a threat to or lead to new accounting requirements Important characteristics of the entity, its business, principal business strategies, financial performance and its reporting requirements, including changes since the previous audit. The company is a typical owner managed family business. The xxxxxxx family own 85% of the shares with Senior Employee A and senior employee B owning the remaining 15%. The owners are involved in a hands on way on a day- to-day basis involved in both management and operations. Extensive internal control and procedures are not in place. The systems and controls in place have evolved as the business grew over the years. The systems and controls in place are adequate given the size and complexity of the business. The businesses strategies are detailed below:- • Consistently maintain gross profit % in excess of 30% • Consistently maintain net profit% of 20% • Attain 20% of national market share by 2012 • Develop and systemise business to make owners non critical to day-to-day operations • Provide for exit mechanism for the 1st generation of the xxxxxxx family and succession of the 2nd generation The company has historically operated profitably on an annual basis and continues to do so in the current year. The overall financial performance is consistent with the company’s ongoing expansion. Based on the initial analytical review there are no significant areas of risk and going concern indicators suggest that going concern is not an issue. There have been no changes in the • Management structure • Operations • Internal Controls • Financial reporting • Staffing • Operations That may affect the current year’s audit. The operating style and control consciousness of directors and management. The directors are very hands on in their management style and employee fraud risk is minimised by the day-to day presence of the directors combined with their rigorous measurement and assessment of the company’s transactions. The entire management team is extremely conscientious and take pride in the accuracy of the financial reporting and stock management systems. Despite the fact that the company does not have complicated or extensive control systems it has systems and controls that are befitting of a company of it’s size and complexity Management Culture Management constantly strive to provide and maintain a high culture of honesty and ethical behaviour. Page 19 © OmniPro OmniPro Education Training 86 of 105
- 89. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY E Group Financial Statements (ISA 600) OPTION 1 NO GROUP OPTION 2 I (name auditor) have been appointed as Group Auditor as at DD/MM/YR. • We will issue a letter of engagement as documented at WP B6. • We will obtain an understanding of the group as outlined in our group engagement team meeting documented @ WP B8. • We will consider the consolidation adjustments and reclassifications as documented at WP T 3. • We will consider the work of component auditors @ WP B8, to include: (a) Independence; (b) Ethical guidelines; and (c) Timescales. • Financial Statements and Trial Balances for each company will be filed at WP T4. • Intra group accounts will be reconciled at WP T5 with written confirmation on WP T6. Section 4 Internal Controls Systems (REF ISA 265, ISA 315) The company’s accounting and internal control systems which have been documented @ WP Ref B 1 P1 have not changed in recent years. Management are heavily involved in the day to day operations of the company, who provide effective control over important account balances and transactions, lessening the need for more detailed control activities. However during the audit we will be alert and or aware of any potential for management to override controls, documented below on Section 6. (IF Applicable) Document deficiencies carried forward which have not been addressed by Management and or Those charged with Governance EG of some deficiencies Controls over significant transactions outside the entity’s normal course of business Controls over significant transactions with related parties Those charged with governance no scrutinizing transactions of management Accountants Role In Producing Financial Statements EXAMPLE WORDING Compliant Accountant Co produces quarterly accounts and prepares and finalises the financial statements based on information received from the client. Audit work is then carried out Specific information/documentation received from the client include the following Page 20 © OmniPro OmniPro Education Training 87 of 105
- 90. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY • Bank statements • Cash/Cheque Receipts Book • Purchase Invoices • Cheque/Debit Ledger • Wages information including details of gross wages, taxes to be deducted etc During the accounting process all banks are fully reconciled and all purchases invoices are reviewed for reasonableness. Maintenance of Books And Records The management acknowledge their responsibilities to maintain the books and records in the letter of engagement signed by them on dd/mm/yyyy filed @ WP Ref B 6. In performing our audit we will assess • Whether the books and records are appropriately kept, • Whether the books contain the necessary information to support the financial statements • Whether there were any accounting system breakdowns in the period under review and the impact of such breakdowns on the financial statements • Whether the books and records are prepared in accordance with the S202 of CA 1990. Any issues during the course of the audit in relation to material weaknesses will be discussed with the client by the engagement partner @ WP Ref B10 who will give the client ample opportunity to address the weaknesses. Where the client refuses to correct the error(s) or weaknesses, the engagement partner will consider both the impact the error/weakness has on the audit report and, in certain circumstances, the appropriateness of continuing to act for the audit client. Audit conclusion Memorandum (REF A 3) will document final issues. The reporting obligations as auditors to the ODCE and other reporting requirements of accountants and auditors will be considered throughout the audit. Our responsibilities in accordance with ISA 265 In accordance with ISA 265 and ISA 315 we should assess the company’s internal controls and systems and conclude whether any deficiencies in internal controls noted constitute “significant deficiencies” as defined in ISA 265. Should such deficiencies arise we will formally communicate these to those charged with governance as part of the audit findings letter (WP Ref A12). Section 5 Audit Risk Assessment (REF ISA 315, ISA 330) THIS SECTION NEEDS TO BE TAILORED SPECIFICALLY TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A SUPERMARKET BELOW The Entities Risk Assessment Process OPTION 1 • The company does not have a formal risk assessment process other than the annual audit and ongoing review and involvement of the company’s directors on a day-to-day basis in the operations and outputs of the company • We will discuss with management whether business risks relevant to financial reporting objectives have been identified and how have they been addressed during our Audit Planning Meeting (Ref WP B9). We will Page 21 © OmniPro OmniPro Education Training 88 of 105
- 91. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY evaluate whether the absence of a documented risk assessment process is appropriate in the circumstances, or determine whether it represents a significant deficiency in control. OPTION 2 • The company’s risk assessment process consists of formal internal reviews carried out by Senior Management on a cyclical basis. • We will discuss reviews carried out by the client to date during the Audit Planning Meeting to be documented @ WP Ref B 9 to obtain an understanding of the reviews carried out, and the results thereof. If we identify risks of material misstatement that management failed to identify, we shall evaluate whether there was an underlying risk of a kind that we expect would have been identified by the entity’s risk assessment process. If there is such a risk, we shall obtain an understanding of why that process failed to identify it, and evaluate whether the process is appropriate to its circumstances or determine if there is a significant deficiency in internal control with regard to the entity’s risk assessment process. Risk Assessment Procedures The risk assessment procedures shall include the following: • Inquiries of management and of others within the entity who in the auditor’s judgment may have information that is likely to assist in identifying risks of material misstatement due to fraud or error • Analytical procedures • Observation and inspection No information obtained from our client acceptance or continuance process is relevant to identifying risks of material misstatement (for this particular client). The firm has not performed other engagements for the entity therefore information was not obtained from other assignments which could be relevant in carrying out risk assessment procedures. There are no matters brought forward from previous years to consider The susceptibility of the entity’s financial statements to material misstatement, and the application of the applicable financial reporting framework to the entity’s facts and circumstances will be discussed during the Internal Engagement Team Planning Meeting (WP Ref B 9). Inquiry of Management and Others within the entity Risk was discussed with the management extensively during the overall process of obtaining background knowledge of the client and its entity a specific conversation relating to risk in the entity with the directors was recorded in the audit planning meeting at WP Ref B 9 Analytical procedures (REF ISA 520) See WP Ref A6 for detailed Commentary IN CASES WHERE A SET OF ACCOUNTS ARE AVAILABLE AT PLANNING STAGE The overall performance and results of the entity will be discussed with the client as part of our initial planning meeting and documented and recorded in the audit planning meeting memo on WP Ref B 9. Based on preliminary analytical review the following areas have been identified as key areas of focus for the audit team. • Sales fluctuations year on year • Cost of sales fluctuations year on year Page 22 © OmniPro OmniPro Education Training 89 of 105
- 92. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY • Change in mix of operating expenditure Based on our initial analytical review there are no significant unusual relationships that specifically indicate a risk of fraud. OR IN CASES WHERE A SET OF ACCOUNTS ARE NOT AVAILABLE AT PLANNING STAGE At the time of our planning we did not have a fully complete Trial balance or set of financial statements by which to prepare a comprehensive Analytical Review. However from discussions with the client as documented and recorded in the audit planning meeting memo on WP Ref B 9 the following primary movements are expected • Increase in sales • Change in mix of operating expenditure Based on this initial analytical review there are no significant unusual relationships that specifically indicate a risk of fraud however we will review this again once a comprehensive Analytical Review has been carried out Observation and Inspection No specific systems testing were performed as part of the auditors risk assessment procedures as the company has basic systems and internal controls (which are fitting for a company of this size) that are not solely relied upon in forming the overall audit opinion. The opinion is based on performing extensive substantive testing on the balance sheet items combined with extensive transaction testing in the course of preparing the accounts. Summary • The overall inherent risk is assessed at low based on our knowledge of the client. • While the Compliant Accountant Co will not rely solely on past experience in assessing the potential risk and fraud factors, based on previous knowledge of the client the risks associated with the engagement are relatively low apart from some of the specific risk areas identified below in Section 9. • Fraud has been assessed and is detailed in Section 6 below. There is nothing to suggest that any fraud has been committed by any officers or employees of the company • There are no complex accounting areas (or significant or unusual accounting estimates) relevant to this client as it is a relatively straight- forward trading company • Based on our knowledge of the client and/or long association combined with the size and complexity of the company and engagement in our professional opinion there are no material risks which may have an adverse impact on the truth and fairness that are not adequately dealt with by our extensive substantive testing set out below in Section 10 detailing specific risks and testing to address those risks. • Any perceived areas of weakness in the internal controls and systems will be identified as part of gathering our information on the background of the client and documenting and reviewing their internal control systems. These weaknesses will be considered as part of our overall audit opinion in the ACM communicated to the client as part of our audit findings letter. Section 6 Accounting Estimates (REF ISA 540) THIS SECTION NEEDS TO BE TAILORED SPECIFICALLY TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A SUPERMARKET BELOW OPTION 1 Situations where accounting estimates, other than fair value accounting estimates, may be required include: • Allowance for doubtful accounts • Inventory Obsolescence • Warranty Obligations • Depreciation method or asset useful life Page 23 © OmniPro OmniPro Education Training 90 of 105
- 93. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY • Provision against the carrying amount of an investment where there is uncertainty regarding its recoverability • Outcome of long term contracts • Costs arising from litigation settlements and judgments Option 2 There are no areas that require the use of accounting estimates Section 7 Fraud (REF ISA 240) THIS SECTION NEEDS TO BE TAILORED SPECIFICALLY TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A SUPERMARKET BELOW Our Responsibilities in accordance with ISA 240 • To identify and assess the risks of material misstatement of the financial statements due to fraud; • To obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and • To respond appropriately to fraud or suspected fraud identified during the audit. In this regard the Fraud questionnaire has been completed at the Planning stage @ WP Ref A13. This will also be reviewed again at the Completion stage. Specific tests will be carried out during the audit on individual sections in areas where fraud has been assessed as a potential risk. Potential Risk of Fraud Based on an initial assessment of Fraud using the Fraud questionnaire @ WP Ref A13 the following areas have been identified as potential fraud risk areas Section Specific Risk Testing Required Sales Revenue Recognition Stock Inventory Quantities Creditors Provisions-Accounting Estimates Cash/Bank Misappropriation of Cash amounts Payroll Misappropriation of Cash amounts Specific responses for each risk have been identified and have been included on the working papers for completion during the audit fieldwork Engagement Team Consideration of Fraud • The engagement team consideration of fraud has been documented on the engagement team planning meeting memo on WP Ref B 8. Management's Assessment of risk of Fraud • Our discussions with management as part of the audit-planning meeting in relation to all fraud related considerations are recorded on WP Ref B 9. Page 24 © OmniPro OmniPro Education Training 91 of 105
- 94. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Initial Assessment of Fraud • Based on our knowledge as accountants and auditors there are no areas that suggest a potential fraud have been identified. • As with all companies irrespective of management’s assessments and beliefs there is a potential for employee fraud. Based on our knowledge of the client their operations and the staff we do not believe that employee fraud presents a significant risk. We will however still undertake testing that we believe will give us reasonable assurance that if a fraud existed that we would detect it. This testing will include significant amounts of substantive testing on transactions and the original client records on a random basis. • As documented above in Section 4 the company has implemented internal control procedures that are sufficient to eliminate or detect fraud in a company of this size and complexity • As with all small to medium owner managed businesses there is a potential for management to override the internal control procedures. This ability to override the internal control procedures may result in the suppression or exclusion of revenues. This potential fraud will be tested and assessed by the auditors by performing substantive audit procedures to assess the completeness and accuracy of the sales and debtors systems. Sampling will be done on a random basis in conjunction with using professional judgement to ensure that the risk of this potential fraud is minimised. The directors have a very negative attitude towards tax evasion and believe on a personal level in paying their dues to society. On this basis it is highly unlikely that the directors are going to be in any way involved in tax evasion or suppression of revenues Reportable Offences • No reportable fraud offences were detected during the course last year’s audit and based on the client planning meeting there were no offences during the current year. If any are detected during the course of our audit they will be reported accordingly. Page 25 © OmniPro OmniPro Education Training 92 of 105
- 95. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Section 8 Materiality (REF ISA 320) The setting of materiality for audit planning purposes In accordance with ISA 320 overall materiality has been set for the company/financial statements as a whole @ WP Ref B4.1. Materiality for the Balance Sheet has been set at ???? while the materiality level for the Profit Loss is ????. Performance Materiality has been documented @ WP B4.2 for individual sections of the file. OR Performance Materiality has been calculated as follows on individual classes of transactions and accrued balances:- Fixed Assets Stocks Debtors Creditors Bank Cash on Hand Trivial misstatement threshold has been documented on WP A7.1 For the purposes of determining a performance materiality level, materiality levels have also been calculated for particular classes of transactions and account balances at WP Ref B4.2. The materiality level has been based on 1% -2% of the total sample population for each set of transactions and balances. The materiality levels set will be continually reviewed and assessed throughout the audit fieldwork to ensure that the initial levels set are appropriate. Materiality levels will be revised in the event of becoming aware of information that would have caused Compliant Auditor to determine a different amount initially. Optional While materiality has been set above in reality this will have no real impact on our audit work as all adjustments are made to the accounts however small/material they may be in accordance with the expectations of the client during our accounts production process. Section 9 Setting Sample Sizes (REF ISA 315, ISA 330, ISA 530) Audit Sample selection will not be required for the majority of tests because 100% transaction testing has taken place as the firm is involved in producing the accounts for the company and finalising the financial statements based on information received from the client. However in certain sections where we deem sample size selection appropriate we will use the methodology as set out below Setting initial sample sizes and sampling methodologies-Mathematically Approach Initial sample sizes are set for all areas of the business as detailed at WP Ref B 4.2. The basic formula used in all areas of the file for calculating sample sizes is Population ÷ materiality ÷ Risk Factor (Inherent Specific Risk) = Minimum Suggested Sample Size For balance sheet testing material items or large items over a certain amount are identified and selected for testing and then the remaining population value is used for calculating the number of items for random sampling. For system and transaction testing on profit loss items all items are tested on a random basis Page 26 © OmniPro OmniPro Education Training 93 of 105
- 96. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY OR Setting initial sample sizes and sampling methodologies-Judgement Basis Under ISA 530 an auditor may exercise professional judgement in calculating sample sizes that will enable the auditor gather sufficient appropriate evidence. In our professional judgement based on our knowledge of our clients it is our opinion that using the sample sizes as set out below will reflect the attributes of the entire population being tested and provide us with sufficient appropriate audit evidence on which to base our conclusions. See WP Ref 4.2 for specific sample sizes applied to each section of the file. Inherent Control High Medium Low Risk High 25 20 15 Medium 20 15 10 Low 15 10 8 NOTE: Each firm should establish its own Sample Size matrix by which their basis of sample testing can be verified for each assignment section by section. Section 10 Specific Risk Assessment (REF ISA 315, ISA 330) THIS SECTION NEEDS TO BE TAILORED SPECIFICALLY TO EACH CLIENT. COMMENTS BELOW ARE FOR ILLUSTRATIVE EXAMPLE PURPOSES ONLY, EXAMPLE FOR A FICTIONAL SUPERMARKET BELOW No particular specific risks were identified for the following sections that would require testing outside of its standard audit programme procedures o Fixed Assets o Investments o Share Capital o Debtors o Wages Salaries Page 27 © OmniPro OmniPro Education Training 94 of 105
- 97. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Section Risk of Material Misstatement Risk Assertion Testing Required Sch. Level Impacted Ref Stocks Existence of Stock 3 E Attendance at Stock F take Incorrect treatment of 2 V NRV Testing on slow F obsolete/slow moving stock moving stocks identified during stock take Cash Misappropriation of Cash 2 C, V Review of cash book H during period and review of cash levels at year end Sales All sales of the company not 3 C, Reconciliation of M completely recorded in accounts A Sales to Point of Sale of company E Reports Analytical review year on year and compared to benchmark We have also performed substantive procedures relating to the Financial Statements by o Agreeing financial statements with the underlying accounting records, documented on WP Ref R1. o Examining material journal entries and other adjustment made during the preparation of the financial statements, documented on WP Ref R1. Section 11 Other Matters Related Parties (REF ISA 550) • We reviewed last years audit file and financial statements for the identification of related parties including loans to Directors. There were no illegal loans to directors or related companies under S31 of CA 1990 in the previous year. • Related parties testing will be performed and considered throughout in all areas in the course of our walk through, transaction and substantive testing. • Statutory minute review, legal correspondence review, bank confirmations and guarantees and general correspondence will be reviewed throughout the audit with details of unusual and /or possible related party transactions documented on WP Ref O3. • We will discuss related party transactions with management. Our discussions with management at the planning stage will be recorded in the audit planning meeting @ WP Ref B 9. • Additional tests will be designed and performed as deemed necessary during the course of the audit. • Written confirmations will be obtained from those charged with governance as part of the tailored letter representation. • If there is any evidence of window dressing or unrecorded related party transactions based on the above testing and any other testing deemed necessary and designed during the course of the audit this will be considered as part of the ACM WP Ref A3. Page 28 © OmniPro OmniPro Education Training 95 of 105
- 98. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Going Concern (REF ISA 570) • The initial assessment of going concern based on the company’s past performance, current financial position and projected trade performance for the coming year suggests that going concern is not likely to be an issue. This should be reviewed as the engagement progresses to assess whether there are any other going concern indicators not obvious based on an initial review of the company’s draft financial results. Work performed will be recorded @ WP Ref A9.1, A9.2 A9.3. In particular the checklist @ A9.2 will be completed both at the planning and the conclusion stages. • We will discuss Going Concern with management. Our discussions with management at the planning stage have been recorded in the audit planning meeting WP Ref B 9. • Written confirmations will be obtained from those charged with governance as part of the tailored letter representation. • We will request management to make their assessment of Going Concern where preliminary assessments have not been prepared and will be recorded @ WP A9.3 Events After the Balance Sheet Date (REF ISA 560) • A detailed review of all Events after the Balance Sheet will take place at the completion stage of the audit. Work performed will be recorded @ WP Ref A 10.1 A 10.2. • We will discuss Events after the Balance Sheet date with management as part of the Audit Conclusion Meeting to be documented at WP Ref A 11. • Written confirmations will be obtained from those charged with governance as part of the tailored letter representation. Page 29 © OmniPro OmniPro Education Training 96 of 105
- 99. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Section 12 Nature, Timing Extent of Audit Procedures (REF ISA 200, ISA 300, ISA 315, ISA 330, ISA 500, ISA 240, ISQC1) Audit file set up and the relative emphasis expected to be placed on tests of control and substantive procedures. • As set out in Section 4based on past knowledge of the client and previous audits undertaken the basic systems and controls will not be heavily relied upon and a predominantly substantive approach for the audit will be taken. • Based on our assessment of the company and the specific risks identified we determine that no additional audit procedures are required in addition to those required by the ISA’s in pursuance of the objectives stated in the ISAs (ISA 200) Assignment approach and tailoring the work programmes. • The basic structure of the audit file adopted will be similar to last year with Compliant Accountant Co standard audit programmes being implemented with tailoring carried out where deemed necessary. Given the nature and complexity of the client combined with our extensive involvement in the finalisation of accounts from draft trial balance it is not expected that any non-standard audit tests will be required. Staffing requirements – timetable, budget, staff assessments and choice of staff based on competence •The budget is set out at WP Ref B 5. The audit fieldwork is due to commence on DATE with the finalisation of financial statements expected on DATE. • There were no material changes to our staff or operations during the year OR • There were significant changes to staff during the year, In XXXX we took on 2 trainees who will assist with the audit assignment. • All audit staff will act in a professional, confidential and courteous manner and any acts of unprofessional behaviour will be dealt with using the audit firm’s disciplinary process. Timescale • 3 months notice required prior to undertaking the audit. The Engagement Partner will decide on the best course of action where the timescale is less. • Timescale has been documented on WP B9 and B7 (Planning Letter) Use of Independent Experts (ISA 620) • No independent external expert advice is required for this engagement. OR • Expert advice is required from ???? who has expertise in the area of ????. The expert opinion will be used so as to achieve our audit objectives in the area of ????.The Checklist @ Q 1 has been completed in accordance with ISA 620. A written agreement has been put in place which sets out o The nature, scope and objectives of that expert’s work o The nature, timing and extent of communication between the auditor and that expert, including the form of any report to be provided by that expert; and o The need for the auditor’s expert to observe confidentiality requirements Page 30 © OmniPro OmniPro Education Training 97 of 105
- 100. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY Stock take Attendance (ISA 501) • The stock take and other on site physical verifications were performed at the year end and at random intervals during the audit period. Details of the stock take are recorded on WP Ref F 10. External Confirmations (ISA 505) • External confirmations will be obtained in relation to: • Bank Confirmations • Standard Solicitors letter • Specific confirmations in relation to potential claims based on client representations • Creditors Circularisation (if applicable) • Professional Valuations (if applicable) (eg – Stocktake) Co-ordination, direction, supervision and review • The audit will be co-ordinated at an operational level by NAME and the ultimate direction, co-ordination, supervision and review will be the responsibility of Compliant Accountant, Audit Partner. The involvement of other auditors, including other offices of the same firm, in the audit of components, for example subsidiary undertakings, branches and divisions • There is no requirement to involve any other auditors other than the staff of Compliant Accountant Co. The company has no subsidiaries branches or divisions audited externally. The involvement of, and communications with, experts, other third parties and internal auditors. • The only experts involved are the company’s solicitor. • Bank confirmations along with a limited number of creditor’s confirmations will be sought during the audit to achieve the audit objectives. The number of locations. • There business only runs from the one principal place of business. The principal onsite work will be performed at the client’s premises. Use of Service Organisations (ISA 402) If the client uses a service organisation then the following should be included • We will obtain an understanding of how a user entity uses the services of a service organisation in the user entity’s operations • In cases where a Type 2 Report (which covers the effectiveness of controls at a service organisation will be used as audit evidence) particular guidance drawn from ISA 402 should be adhered to @ WP S1 and S2. Independent Partner Review if appropriate. • Based on past experience of the client and initial consideration of the ethical standards and the independence policy of Compliant Accountant Co there are no issues which suggest that Independent Partner Review is appropriate or necessary. This should be monitored throughout the engagement and if any areas of significant risk or potential threats to independence arise the possibility or requirements to undertake an independent partner review should be documented on the file. Page 31 © OmniPro OmniPro Education Training 98 of 105
- 101. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY External Consultation • External Consultation will be sought in accordance with the firms internal policies should the need arise. Response to Risks • SEE SECTION 9 ABOVE REGARDING SPECIFIC RISKS IDENTIFIED AND AUDIT APPROACH New Clients Only Opening Balances / Comparatives (REF ISA 510) • A comparison between the Closing Trial Balance from the previous year and the Opening Balances for this year shows that all amounts have balanced forward consistently @ WP Ref R2 • This is a continuing engagement we as ongoing auditors have assessed the accounting treatment and policies adopted in the current and previous year and no changes have been made • In conjunction with performing the above testing we have documented the testing performed in relation to the reliability of opening balances by performing the following tests:- o Tracing last year closing balances through to lead schedules provided by previous auditor o Assessing the comments made if any in the letter of professional clearance obtained from the outgoing auditor o Assessing the qualifications and reliability of the previous audit in accordance with ISA 520 o Performing transaction and systems testing on opening nominal codes to ensure the accuracy, cut off, existence and valuation of all material transactions and balances o As part of our substantive testing on material transactions and balances for the current year audit we would reasonably expect to detect any material differences that may exist and if any of differences are detected that relate to prior periods these will be quantified and assessed as part of our final opinion in our Audit Conclusion Memorandum on Schedule A 3. The contents of the audit planning memorandum was discussed in detail by the audit engagement team during the course of the audit planning engagement team meeting held on XX/XX/XXXX as detailed on WP Ref B 8. Page 32 © OmniPro OmniPro Education Training 99 of 105
- 102. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. CLIENT NAME Prepared by: _______ PERIOD END Reviewed by: _______ B2 AUDIT PLANNING MEMORANDUM MEDIUM/LARGE COMPANY We have read and understood the Planning Memorandum Name Signed Date Independent Review Partner (if appropriate) Audit Engagement Partner Manager Senior 1 Senior 2 Semi-Senior 1 Semi-Senior 2 Junior Page 33 © OmniPro OmniPro Education Training 100 of 105
- 103. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Compliant Client B 4.1 31 December 2008 Initials Date Prepared by: Staff 1-Jan-09 Index Reviewed by: Partner 31-Jan-09 Overall Materiality FIGURES FROM FINANCIAL STATEMENTs Typical Materiality % Materiality € Gross Assets 400,000 2.0% 8,000 4.0% 16,000 Turnover 1,000,000 2.0% 20,000 1.0% 10,000 Profits before tax 300,000 5.0% 15,000 10.0% 30,000 Overall Materiality for the Balance Sheet has been set @ €16,000 based on 4% of Gross Assets. In our opinion (based on our knowledge of the business and our risk assessment of the JUSTIFICATION FOR company) materiality at this level is sufficient in ensuring that all MATERIALITY OF errors/misstatements which would reasonably be expected to BALANCE SHEET influence the economic decisions of user would be identified Overall Materiality for the Profit Loss has been set @ €10,000 based on 1% of Sales. In our opinion (based on our knowledge of the business and our risk assessment of the company) materiality JUSTIFICATION FOR at this level is sufficient in ensuring that all errors/misstatements MATERIALITY OF PROFIT which would reasonably be expected to influence the economic LOSS decisions of user would be identified NOTE The above formulae are suggestions for the calculation of materiality. Ultimately the auditor should exercise their professional judgement and consider their knowledge of the entity and the audit risk in calculating the audit materiality level You may need to review and revise the materiality level during the audit. When deciding whether the materiality level has been exceeded you should look at the cumulative effect of all unadjusted errors © OmniPro OmniPro Education Training 101 of 105
- 104. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Compliant Client A 13.1 31 December 2008 Initials Date Prepared by: Staff 1-Jan-09 Reviewed by: Partner 31-Jan-09 Index Fraud Questionnaire Audit Programme Planning Final Y/N Y/N Comments A Risk Factors Relating to Misstatements Arising from Fraudulent Financial Reporting Incentives/Pressures 1 Financial stability/profitability is threatened by economic, industry or entity operating conditions such as * High degree of competition or market saturation, accompanied by declining margins. * High vulnerability to rapid changes, such as changes in technology, product obsolescence, or interest rates. * Significant declines in customer demand and increasing business failures in either the industry or overall economy. * Operating losses making the threat of bankruptcy, foreclosure, or hostile takeover imminent. * Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth. * Rapid growth or unusual profitability especially compared to that of other companies in the same industry. * New accounting, statutory, or regulatory requirements. 2 Excessive pressure exists for management to meet the requirements or expectations of third parties due to the following * Profitability or trend level expectations of investment analysts, institutional investors, significant creditors, or other external parties (particularly expectations that are unduly aggressive or * Need to obtain additional debt or equity financing to stay competitive – including financing of major research and development or capital expenditures. * Marginal ability to meet exchange listing requirements or debt repayment or other debt covenant requirements. * Perceived or real adverse effects of reporting poor financial results on significant pending transactions, such as business combinations or contract awards. 3 Information available indicates that the personal financial situation of management or those charged with governance is threatened by the entity's financial performance arising from the following * Significant financial interests in the entity. * Significant portions of their compensation (for example, bonuses, stock options, and earn-out arrangements) being contingent upon achieving aggressive targets for stock price, operating results, financial position, or cash flow.25 * Personal guarantees of debts of the entity. 4 There is excessive pressure on management or operating personnel to meet financial targets established by those charged with governance, including sales or profitability incentive goals. Opportunities 5 The nature of the industry or the entity’s operations provides opportunities to engage in fraudulent financial reporting that can arise from the following: * Significant related-party transactions not in the ordinary course of business or with related entities not audited or audited by another firm. * A strong financial presence or ability to dominate a certain industry sector that allows the entity to dictate terms or conditions to suppliers or customers that may result in inappropriate or non-arm’s-length transactions. © OmniPro OmniPro Education Training 102 of 105
- 105. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Compliant Client A 13.1 31 December 2008 Initials Date Prepared by: Staff 1-Jan-09 Reviewed by: Partner 31-Jan-09 Index Fraud Questionnaire Audit Programme Planning Final Y/N Y/N Comments * Assets, liabilities, revenues, or expenses based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate. * Significant, unusual, or highly complex transactions, especially those close to period end that pose difficult “substance over form” questions. * Significant operations located or conducted across international borders in jurisdictions where differing business environments and cultures exist. * Use of business intermediaries for which there appears to be no clear business justification. * Significant bank accounts or subsidiary or branch operations in tax-haven jurisdictions for which there appears to be no clear business justification. 6 There is ineffective monitoring of management as a result of the following: * Domination of management by a single person or small group (in a non owner-managed business) without compensating controls. * Oversight by those charged with governance over the financial reporting process and internal control is not effective. 7 There is a complex or unstable organizational structure, as evidenced by the following: * Difficulty in determining the organization or individuals that have controlling interest in the entity. * Overly complex organizational structure involving unusual legal entities or managerial lines of authority. * High turnover of senior management, legal counsel, or those charged with governance. 8 Internal control components are deficient as a result of the following: * Inadequate monitoring of controls, including automated controls and controls over interim financial reporting (where external reporting is required). * High turnover rates or employment of accounting, internal audit, or information technology staff that are not effective. * Accounting and information systems that are not effective, including situations involving significant deficiencies in internal control. Attitudes/Rationalisations 9 Communication, implementation, support, or enforcement of the entity’s values or ethical standards by management, or the communication of inappropriate values or ethical standards, that are not effective. 10 Non financial management’s excessive participation in or preoccupation with the selection of accounting policies or the determination of significant estimates. 11 Known history of violations of securities laws or other laws and regulations, or claims against the entity, its senior management, or those charged with governance alleging fraud or violations of laws and regulations. 12 Excessive interest by management in maintaining or increasing the entity’s stock price or earnings trend. 13 The practice by management of committing to analysts, creditors, and other third parties to achieve aggressive or unrealistic forecasts. 14 Management failing to remedy known significant deficiencies in internal control on a timely basis. 15 An interest by management in employing inappropriate means to minimize reported earnings for tax-motivated reasons. 16 Low morale among senior management. 17 The owner-manager makes no distinction between personal and business transactions. 18 Dispute between shareholders in a closely held entity. 19 Recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality. © OmniPro OmniPro Education Training 103 of 105
- 106. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Compliant Client A 13.1 31 December 2008 Initials Date Prepared by: Staff 1-Jan-09 Reviewed by: Partner 31-Jan-09 Index Fraud Questionnaire Audit Programme Planning Final Y/N Y/N Comments 20 The relationship between management and the current or predecessor auditor is strained, as exhibited by the following: * Frequent disputes with the current or predecessor auditor on accounting, auditing, or reporting matters. * Unreasonable demands on the auditor, such as unrealistic time constraints regarding the completion of the audit or the issuance of the auditor’s report. * Restrictions on the auditor that inappropriately limit access to people or information or the ability to communicate effectively with those charged with governance. * Domineering management behaviour in dealing with the auditor, especially involving attempts to influence the scope of the auditor’s work or the selection or continuance of personnel assigned to or consulted on the audit engagement. B Risk Factors Arising from Misstatements Arising from Misappropriation of Assets Incentives/Pressures 1 Personal financial obligations may create pressure on management or employees with access to cash or other assets susceptible to theft to misappropriate those assets. 2 Adverse relationships between the entity and employees with access to cash or other assets susceptible to theft may motivate those employees to misappropriate those assets. For example, adverse relationships may be created by the following: * Known or anticipated future employee layoffs. * Recent or anticipated changes to employee compensation or benefit plans. * Promotions, compensation, or other rewards inconsistent with expectations. Opportunities 3 Certain characteristics or circumstances may increase the susceptibility of assets to misappropriation. For example, opportunities to misappropriate assets increase when there are the following: * Large amounts of cash on hand or processed. * Inventory items that are small in size, of high value, or in high demand. * Easily convertible assets, such as bearer bonds, diamonds, or computer chips. * Fixed assets which are small in size, marketable, or lacking observable identification of ownership. 4 Inadequate internal control over assets may increase the susceptibility of misappropriation of those assets. For example, misappropriation of assets may occur because there is the following: * Inadequate segregation of duties or independent checks. * Inadequate oversight of senior management expenditures, such as travel and other re-imbursements. * Inadequate management oversight of employees responsible for assets, for example, inadequate supervision or monitoring of remote locations. * Inadequate job applicant screening of employees with access to assets. * Inadequate record keeping with respect to assets. * Inadequate system of authorization and approval of transactions (for example, in purchasing). © OmniPro OmniPro Education Training 104 of 105
- 107. A Personalised CPDCertificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Compliant Client A 13.1 31 December 2008 Initials Date Prepared by: Staff 1-Jan-09 Reviewed by: Partner 31-Jan-09 Index Fraud Questionnaire Audit Programme Planning Final Y/N Y/N Comments * Inadequate physical safeguards over cash, investments, inventory, or fixed assets. * Lack of complete and timely reconciliations of assets. * Lack of timely and appropriate documentation of transactions, for example, credits for merchandise returns. * Lack of mandatory vacations for employees performing key control functions. * Inadequate management understanding of information technology, which enables information technology employees to perpetrate a misappropriation. * Inadequate access controls over automated records, including controls over and review of computer systems event logs. Attitudes/Rationalisations 5 Disregard for the need for monitoring or reducing risks related to misappropriations of assets. 6 Disregard for internal control over misappropriation of assets by overriding existing controls or by failing to take appropriate remedial action on known deficiencies in internal control. 7 Behaviour indicating displeasure or dissatisfaction with the entity or its treatment of the employee. 8 Changes in behaviour or lifestyle that may indicate assets have been misappropriated. 9 Tolerance of petty theft. CONCLUSION In our professional judgement work carried out in this section has been satisfactorily completed and recorded with all appropriate evidence received. Based on our testing carried out we can conclude that there were no indications of Fraud noted Staff Signed 1-Jan-09 Date Partner Reviewed 31-Jan-09 Date © OmniPro OmniPro Education Training 105 of 105