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31 views2 pages

Fs Audit Process - Audit Planning

n)@

Uploaded by

Julian Mernando vlogs
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FINANCIAL STATEMENTS 3.

Procedures on specific phases of the audit can be further


challenged and revised as the work progresses.
Time Budget
AUDIT PROCESS – A time budget is an estimate of the total hours an audit is expected
to take. It is based on the information obtained in the first major step
AUDIT PLANNING in the audit, that is, obtaining an understanding of the client.

Materiality
Preliminary Engagement Activities In planning the audit, the auditor makes judgments about the size of
1. Perform procedures regarding the continuance of the client misstatements that will be considered material.
relationship and the specific audit engagement.
2. Evaluate compliance with ethical requirements, including Performance materiality means the amount or amounts set by
independence. the auditor at less than materiality for the financial statements as a
3. Establish an understanding of the terms of the whole to reduce to an appropriately low level the probability that the
engagement. aggregate of uncorrected and undetected misstatements exceeds
materiality for the financial statements as a whole. If applicable,
Planning Activities performance materiality also refers to the amount or amounts set by
The auditor shall establish an overall audit strategy that sets the the auditor at less than the materiality level or levels for particular
scope, timing and direction of the audit, and that guides the classes of transactions, account balances or disclosures.
development of the audit plan.
Required documentation:
Audit Strategy: The auditor should establish an overall audit A. Materiality for the financial statements as a whole
strategy, including preliminary assessment of materiality. The audit B. If applicable, the materiality level or levels for particular
strategy outlines the scope of the audit engagement, the reporting classes of transactions, account balances or disclosures
objectives, timing of the audit, required communications, and the C. Performance materiality and
factors that in the auditor’s professional judgment are significant in D. Any revision of Materiality and Performance materiality as
directing the engagement team effort. (General approach) the audit progresses
_

Audit Plan: The auditor is required to develop a written audit plan Risk assessment activities
The objective of the auditor is to identify and assess the risks of
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that outlines the nature, extent and timing of the procedures to be


performed during audit, including. (Specific details) material misstatement, whether due to fraud or error, at the
a. Risk assessment procedures financial statement and assertion levels.
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b. Further audit procedures at the assertion level (tests of


controls and substantive procedures) To enable the auditor to identify and assess the risk of material
c. Other planned audit procedures to comply with PSA misstatement, the auditor should obtain an understanding of the
following
The audit plan shall also include the direction and supervision of A. Entity and its environment
engagement team members and the review of their work. B. Applicable financial reporting framework
C. Entity’s system of internal control.
The audit strategy and audit plan can be modified as the audit
progresses in response to new information or the results of other Assertions – Representations, explicit or otherwise, with respect
procedures. to the recognition, measurement, presentation and disclosure of
information in the financial statements which are inherent in
Audit planning documentation management representing that the financial statements are
A. Audit Strategy prepared in accordance with the applicable financial reporting
B. Audit Plan framework. Assertions are used by the auditor to consider the
C. Any significant changes to the audit strategy and audit plan different types of potential misstatements that may occur when
and the reason for the change identifying, assessing, and responding to the risks of material
misstatement.
Audit Program
An audit program is a set of audit procedures specifically designed Significant risk – An identified risk of material misstatement:
for each audit.  For which the assessment of inherent risk is close to the
On initial engagements, the audit program typically will develop in upper end of the spectrum of inherent risk due to the
three stages: degree to which inherent risk factors affect the
1. The broad phases of the program can be outlined at the combination of the likelihood of a misstatement occurring
time of the engagement. and the magnitude of the potential misstatement should
2. Other details of the program can be identified after the that misstatement occur; or
review of internal control structure and accounting  That is to be treated as a significant risk in accordance with
procedures has begun the requirements of other PSAs.
The auditor must perform the following procedures to assess and
respond to the risk of material misstatement:
A. Obtain an understanding of the entity and its environment,
applicable financial reporting framework and its system of
internal control.
B. Identify and assess the risk of material misstatement
(note: assess both inherent and control risk separately).
C. Respond to the assessed level of risk by performing
further audit procedures (tests of controls and substantive
tests).
D. Evaluate audit evidence.

Audit risk is the risk that the auditor may unknowingly fail to modify
appropriately the opinion on materially misstated financial
statements. The auditor should plan the audit so that the overall
audit risk is limited to a low level.

Important Characteristics of Analytical Procedures at


Three Audit Stages
Stage of the

_
Required Purpose
Audit
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To assist in
planning the
nature, timing and
Planning Yes
extent of other
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auditing
procedures.
To obtain evidential
matter about
particular
assertions related
Substantive Testing No
to account balances
or
classes of
transactions.
To assist in
assessing the
conclusions
reached
Overall Review Yes and in the
evaluation of
overall financial
statement
presentation.

Consideration of fraud in audit planning


In making the assessment of whether fraud risk factors are present,
the auditor should understand the three conditions that are generally
present when fraud occurs. These are known as the “fraud triangle”.
1. Incentives/Pressures
2. Opportunities
3. Attitudes/Rationalizations

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