Week 5 Planning PowerPoints- Part 1 recorded

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Presentation Description

Part 1 of our discussion of the planning process.

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Presentation Transcript

Chapter 03:

Chapter 03 Engagement Planning "Vision without action is a daydream. Action without vision is a nightmare. ” Japanese Proverb 3- 1

Learning Objectives:

Learning Objectives List and describe the required pre-engagement activities that auditors undertake before beginning an audit engagement. Understand the importance of planning the audit engagement so that it is conducted in accordance with professional standards. Define materiality and explain its importance in the audit planning process. List and describe the eight general types of audit procedures for gathering evidence. List and discuss matters of planning that auditors should consider related to the client ’ s computer environment and describe how CAATs can be used to improve the efficiency of the audit process. Define what is meant by the proper form and content of audit documentation. 3- 2

Planning is Key :

Planning is Key Planning is the most important part of the audit process. I allows the auditor to: Assess inherent and control risk to set detection risk Establish materiality as a threshold for audit procedures Determine the most effective and efficient audit strategy Select the appropriate audit team and establish schedules and timetables Poor planning results in poor performance!!!

Planning Process Overview:

Planning Process Overview

Pre-Engagement Activities:

Pre-Engagement Activities Client Acceptance or Continuance Communication between predecessor and prospective auditors Compliance with Independence and Ethical Requirements Engagement Letters Termination Letter 3- 5

Communication between Predecessor and Prospective Auditors :

Communication between Predecessor and Prospective Auditors Attempt to communicate is required If client permits, issues to discuss Disagreements about accounting principles or audit procedures. Communications the predecessor auditors gave the former client about fraud, illegal acts, and internal control recommendations. The predecessor auditors ’ understanding about the reasons for the change of auditors (particularly about the predecessor auditors ’ termination). 3- 6

Compliance with Independence and Ethical Requirements:

Compliance with Independence and Ethical Requirements The responsibilities principle requires auditors to comply with appropriate ethical requirements for each audit engagement Auditors must maintain independence in mental attitude and independence in fact Independence in appearance relates to perceptions of auditors ’ independence A lack of independence can result in disciplinary action by regulators and/or professional organizations and litigation by those who relied on the financial statements 3- 7

Staffing the Audit Engagement:

Staffing the Audit Engagement Teams usually consist of the: Audit engagement partner Audit manager IT audit specialist Tax partner Quality assurance partner Audit staff For new client, companies with complex transactions and public companies, more experienced staff members are typically assigned. 3- 8

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