Client Evaluation and Planning the Audit Lecture slide chapter 8
Describe the steps involved in client acceptance and continuance.
State the purpose and content of an engagement letter.
Explain the steps in planning an audit.
Identify the risks of misstatement through understanding the entity and its environment.
Explain the role of analytical procedures in audit planning.
Describe the requirements to consider the risk of fraud in the audit planning process.
Explain the purpose and function of audit working papers.
This is a theoretical presentation describes the history of audit and assurance, definition, process of auditing, objectives, responsibilities, expectation gap, audit evidence and how to report the audit paper. This is mainly the vast knowledge about how an auditor performs audit and how the reporting of audit is done.
This is a theoretical presentation describes the history of audit and assurance, definition, process of auditing, objectives, responsibilities, expectation gap, audit evidence and how to report the audit paper. This is mainly the vast knowledge about how an auditor performs audit and how the reporting of audit is done.
Internal audit means a continuous critical review of financial and operating matters of a business. In other words, we can say that the audit of a business conducted by the business for a continuous basis. Internal audit is done by the internal staff appointed particularly for the audit purposes. These are called internal auditors.
This is a step-by-step process on how to plan and carry out Auditing. This shall be useful for Accountants , professionals,small businesses,big businesses.
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International standards on auditing help provide the way to do audit acceptan, Audit planning, Audit documentation,Audit evidence gathering, Audit procedures, Audit Reporiting, Audit Standard quality Review etc.
Internal audit means a continuous critical review of financial and operating matters of a business. In other words, we can say that the audit of a business conducted by the business for a continuous basis. Internal audit is done by the internal staff appointed particularly for the audit purposes. These are called internal auditors.
This is a step-by-step process on how to plan and carry out Auditing. This shall be useful for Accountants , professionals,small businesses,big businesses.
International standards on auditing(is as)Armaghan khan
International standards on auditing help provide the way to do audit acceptan, Audit planning, Audit documentation,Audit evidence gathering, Audit procedures, Audit Reporiting, Audit Standard quality Review etc.
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The purpose of a financial statement audit is to add credibility to the reported financial condition and business performance. Annual reports must be submitted by all publicly traded corporations and are subject to SEC audits.Similarly, lenders typically require audits of the financial statements of the companies they finance. Suppliers may also require audited Financial Statement Preparation in New York before granting trade credit (usually only if the amount of credit requested is substantial).
Audit company - Audit for companies - PKC Management ConsultingPKCIndia2
An audit company is usually hired to perform the audit process. The auditor will work closely with the company's finance team to review financial statements, internal controls, and other relevant documents. we will provide an overview of how audits work, including the different stages and levels involved in the process. Whether you are a business owner or a professional looking to learn more about auditing practices, this article will serve as a useful guide. In conclusion, PKC Management Consulting is a reputable audit company that offers comprehensive and efficient auditing services for companies of all sizes. With their team of experienced auditors and consultants, they provide valuable insights and recommendations to improve business operations and financial management. Their commitment to integrity, professionalism, and customer satisfaction sets them apart in the industry. If you're looking for an audit partner that can help you achieve your business goals, PKC Management Consulting is the right choice. Contact them today to learn more about their services and how they can add value to your organization.
Chapter 9Audit Risk AssessmentPrepared by Dr Phil Saj1.docxmccormicknadine86
Chapter 9
Audit Risk Assessment
Prepared by Dr Phil Saj
1
Learning objectives
Appreciate the importance of audit risk assessment and why it is linked to financial statement assertions.
Explain the importance of business risks in audit planning.
Describe the procedures performed by an auditor to assess risk.
Appreciate the importance of internal control to an entity and to its independent auditors.
2
Learning objectives
Indicate the procedures for obtaining and documenting an understanding of the entity’s internal control.
Explain why and how a preliminary assessment of control risk is made.
Explain the importance of the concept of audit risk and its three components.
3
Management’s financial statement assertions
Existence or occurrence
Assets or liabilities of the entity exist at a given date and whether recorded transactions or events have occurred during the period.
Completeness
Transactions, events and accounts that should be presented in the financial statement are included.
Cut-off
All transactions, events and accounts have been recorded in the correct period.
4
Management’s financial statement assertions
Rights and obligations
Assets represent rights of the entity and liabilities
are the obligations of the entity at a given date.
Valuation and allocation
Asset, liability, components have been included in the
financial statements at the appropriate amounts.
Accuracy
Transactions have been appropriately recorded
in the proper accounts.
5
Management’s financial statement assertions
Presentation and disclosure
Particular components of the financial statements are
properly classified, described and disclosed.
Refer to the textbook Table 9.1, page 363, for illustrations of each of these assertions.
6
Business risk assessment
A business risk approach allows the auditor to:
Identify threats faced by the organisation.
Recognises that most business risks will eventually
have an effect on the financial statements.
Increase the chances of identifying risks of material
misstatements in the financial reports
Categories of business risk:
Financial risk
Operational risk
Compliance risk
7
Risk assessment procedures
Enquiries
Management, staff, internal auditors, company bankers,
legal advisors.
Analytical procedures
Provide a broad indication of the likelihood of possible
errors.
Observations and inspections
Inspection of manuals, visiting business premises,
observing procedures taking place.
8
Importance of internal control
The Committee of Sponsoring Organisations (COSO) of
the Treadway Commission defines internal control as:
a process, effected by an entity’s board of directors,
management and other personnel, designed to
provide reasonable assurance regarding the
achievement of objectives in the following categories:
Effectiveness and efficiency of ...
Related party transactions, significant unusual transactions, and transactions with a company’s executive officers are three critical areas of risk that have been contributing factors in a number of financial reporting frauds over the last several decades. The PCAOB has previously concluded that its existing requirements to audit these areas are not sufficient and are not sufficiently risk-based.
In response, the PCAOB issued, and the SEC has approved Auditing Standard (“AS”) No. 18, Related Parties, as well as amendments to existing standards on auditing significant unusual transactions and transactions with a company’s executives. These changes may result in additional documentation and scrutiny of these types of transactions by audit firms as they comply with the standard for audits performed under PCAOB standards, including those for publicly traded companies and broker-dealers.
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The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
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• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
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2. Learning objectives
1. Describe the steps involved in client acceptance and
continuance.
2. State the purpose and content of an engagement letter.
3. Explain the steps in planning an audit.
4. Identify the risks of misstatement through understanding
the entity and its environment.
5. Explain the role of analytical procedures in audit planning.
6. Describe the requirements to consider the risk of fraud in
the audit planning process.
7. Explain the purpose and function of audit working papers.
2
3. Planning the audit
The planning stage should include:
Procedures covering acceptance of a new audit;
Establishing an overall audit strategy; and
Developing an audit plan.
3
4. Acceptance and continuance of
client relationships
The decision to accept (or continue) an audit
engagement depends on the client evaluation and ethical
and legal considerations.
ASA 210 Agreeing the Terms of Audit Engagements
ASCQ1 Quality Control for Firms that perform Audits
and Reviews of Financial Reports and Other Financial
Information and Other Assurance Engagements.
44
5. Evaluate
integrity of
management
Acceptance and continuance of client
relationships:
Steps in accepting an audit engagement
Engagement
Evaluate
independence
Prepare
engagement
letter
Determine ability
to use due care
Client evaluation
Identify special
circumstances
and unusual risks
Assess
competence
to perform audit
Ethical and legal
considerations
5
6. Client evaluation
Evaluating the integrity of management:
Communicating with existing auditors.
Making enquiries of other third parties.
Reviewing previous experience with existing clients.
Identifying special circumstances and unusual risks:
Identifying intended users of the audited financial
statements.
Assessing a prospective client’s legal and financial
stability.
Evaluating the client’s auditability.
6
7. Ethical and legal considerations
Ethical considerations relate to whether the audit firm is
able to meet independence criteria, complete the
engagement with professional competence and perform
the audit with due care.
legal considerations relate to ensuring compliance with
the requirements of the Professional Code of Conduct
and the Corporations Act in the evaluation of
independence and ensuring there are no conflicts of
interest.
7
8. Ethical and legal considerations
Ethical requirements prescribed under Corporations Act
Auditor to give written representation that there are no
contraventions of independence requirements.
Auditor should take reasonable steps to ensure any
conflicts of interest cease.
Auditor cannot play a significant role in audit of a listed
company for more than 5 consecutive years.
8
9. Ethical and legal considerations
Assessing competence to perform an audit
Engagement team to have appropriate
competence and capabilities to perform the audit
in accordance with Australian Auditing
Standards, legal and regulatory requirements.
Determining ability to use due care
Involves review of work done and judgements
exercised by those assisting in the audit.
9
10. Engagement letter
As a final step in the acceptance phase, in compliance
with auditing standards and good professional practice,
it is important to confirm the terms of each engagement
in an engagement letter.
Refer to ASA 210 Agreeing the Terms of Audit
Engagements for details of an engagement letter which
includes the scope of audit procedures, quality control,
fees and other matters.
1010
11. Engagement letter
Engagement letter to include:
Objective and scope of the audit.
Responsibilities of the auditor.
Responsibilities of management.
Identification of the applicable financial reporting
framework.
Reference to expected form and content of
reports to be issued.
11
12. Planning the audit
ASA 300 Planning an Audit of a Financial Report
provides the guidelines for the auditor to follow:
Audit planning involves the development of an
overall plan for the conduct and scope of the
audit.
Adequate planning helps to ensure that
appropriate attention is given to important areas
of the audit and that problems are identified
properly.
1212
13. Steps in the planning process
Planning starts with obtaining an understanding of the
entity and its environment in order to understand
events, transactions and practices affecting the entity
Planning also involves setting materiality levels,
assessing audit risk and its components, and obtaining
an understanding of the internal control structure .
1313
14. Steps in the planning process
Make preliminary
judgments about
materiality levels
Consider the
audit risk
Develop preliminary
audit strategies
for significant
assertions
Obtain an
understanding
of the entity’s internal
control structure
Obtain an
understanding of
the entity and its
environment
14
15. Understanding of the entity and
its environment
To plan an audit, the auditor should obtain an
understanding of the entity and its environment in order
to understand events, transactions and practices that
may have a significant effect on the financial
statements.
This understanding provides a framework for planning
an overall audit approach that responds to the unique
characteristics of the entity.
1515
16. Industry conditions
Understanding industry conditions includes
understanding the market for a client’s products, the
capacity of competitors relative to market conditions,
and price competition.
Certain industries may also have transactions that
increase the risks of material misstatements.
1616
17. Regulatory issues
The regulatory environment can have direct economic
consequences or affect the accounting and disclosure
requirements.
Specific regulatory requirements for particular
industries must be considered.
The auditor should be aware that non-compliance with
relevant laws and regulations may materially affect the
financial statements.
1717
18. Economic factors
Factors include the general level of economic activity,
interest rates, the availability of financing and the level
of inflation.
Economic downturns can create circumstances that
require write-offs of receivables, inventory or other
assets.
These conditions increase the inherent risk of
misstatements and require close examination by the
auditor.
1818
19. The nature of the entity
Business operations
The auditor needs to gain knowledge of issues such as
products and markets, conduct of operations, and
transactions with related parties.
Need to match accounting policies with the type of
business operations.
1919
20. Investments and financing
Capital investment activities, including investments in
technology, and non-consolidated activities such as
joint ventures, are of significance from an audit
perspective.
Issues such as debt structure, leasing arrangements,
guarantees etc. are also important.
2020
21. Financial reporting and
accounting practices
Accounting principles, revenue recognition
practices, accounting for fair values and
knowledge of industry- specific practices are all
important .
21
22. The entity’s objectives, strategies
and related business risks
An entity’s strategies are the operational approaches by
which management intends to achieve its objectives.
Business risks result from significant conditions, events,
circumstances, actions or inactions that could adversely
affect the entity’s ability to achieve its objectives and
execute its strategies.
2222
23. The entity’s objectives, strategies
and related business risks
Some matters the auditor may consider include:
Developments in the industry.
New products and services.
Expansion of the business
e.g. a potential business risk might be that the
estimated demand associated with an
expansion has not been accurately estimated.
Current and prospective financing requirements
e.g. a business risk is loss of financing due to
inability to meet debt covenant requirements.
2323
24. Measurement and review of
financial performance
Such measures from an audit perspective would
include:
Key ratios and operating statistics;
Key performance indicators;
Employee performance measures;
Industry trends;
Forecasts, budgets and variance analysis; and
Analyst reports and credit rating reports.
2424
25. Performing analytical procedures
Analytical procedures involve a study and comparison of
relationships among data to identify expected or
unexpected fluctuations and other unusual items.
The common types of analytical procedures involve a
comparison of the entity’s financial information with:
Comparable information for a previous period or periods
Expected results such as budgets and forecasts
industry averages.
Refer to ASA 520 Analytical Procedures.
2525
26. Consideration of fraud in
planning
The importance of considering fraud in the planning of an
audit has increased in recent years
ASA 240
The auditor shall evaluate whether the information
obtained from the other risk assessment procedures
and related activities performed indicates that one or
more fraud risk factors are present.
2626
29. Auditing for fraud
Procedures to identify the risk of material misstatement
due to fraud:
Enquiries of management.
Consideration of any unusual or unexpected
relationships identified.
Consideration of other information obtained
while planning the audit.
29
30. Audit documentation
Purpose and function of working papers:
Demonstrate that the audit was performed in
accordance with the auditing standards.
Monitor the progress of the audit.
Provide a guide to the planning and performance
of subsequent audits.
Record the nature, timing and extent of audit
procedures performed.
30
31. Audit documentation
Working paper files include:
Permanent file;
Current file;
Working trial balance;
Schedules and analyses;
Audit memoranda and corroborating information;
Proposed adjusting and reclassifying entries; and
Audit program.
31