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Chapter 6 Planning

This document discusses key aspects of audit planning, including: - The purpose of planning is to ensure audits are performed effectively and efficiently and auditors fulfill their responsibilities. - Planning involves preliminary engagement activities, developing an audit strategy that sets the scope and direction, and a detailed audit plan. - Auditors must consider fraud and error, assess risks, and obtain reasonable assurance that financial statements are free of material misstatement. - Directors and management are responsible for internal controls and culture to prevent and detect fraud, while internal and external auditors have responsibilities to investigate fraud and identify control deficiencies. Proper documentation of the audit work is also required.

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58 views19 pages

Chapter 6 Planning

This document discusses key aspects of audit planning, including: - The purpose of planning is to ensure audits are performed effectively and efficiently and auditors fulfill their responsibilities. - Planning involves preliminary engagement activities, developing an audit strategy that sets the scope and direction, and a detailed audit plan. - Auditors must consider fraud and error, assess risks, and obtain reasonable assurance that financial statements are free of material misstatement. - Directors and management are responsible for internal controls and culture to prevent and detect fraud, while internal and external auditors have responsibilities to investigate fraud and identify control deficiencies. Proper documentation of the audit work is also required.

Uploaded by

Abdulahi farah Abdi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Auditing & Assurance

Audit
Audit Planning
Planning

1
Purpose of planning
• The objective of the auditor is to plan the
audit so that it will be performed in an
effective manner.‘
• Audits are potentially complex, risky and
expensive processes. Although firms have
internal manuals and standardized
procedures, it is vital that engagements are
planned to ensure that the auditor:
Purpose of planning
• In order to achieve the overall objectives of the
auditor, the audit must be conducted in accordance
with ISAs.
• Ensures that the auditor is fulfilling all of their
responsibilities
• Allows a user to have as much confidence in one
auditor's opinion
• Ensures that the quality of audits internationally
• Provides a measure to assess the standard of an
auditor's work
The planning process
Planning consists of a number of elements
• Preliminary engagement activities:
• – Perform procedures regarding the continuance
of the client engagement.
• – Evaluating compliance with ethical
requirements.
• – Ensuring there are no misunderstandings with
the client as to the terms of the engagement
The audit strategy
• The audit strategy and the audit plan must be
documented in the audit working papers. Any
updates to them must also be documented
• The audit strategy sets the scope, timing and
direction of the audit. It allows the auditor to
determine
The audit plan
• Once the audit strategy has been established,
the next stage is to develop a specific, detailed
plan to address how the various matters
identified in the overall strategy
The relationship between the audit strategy
and the audit plan
Interim and final audit
• For an interim audit to be justified the client normally
needs to be of a sufficient size because this may increase
costs. However, an interim audit should improve risk
assessment and make final procedures more efficient.
• It is important to note that the interim audit and final
audit are two stages of the same audit. One set of
financial statements are audited. One auditor’s report
will be issued. The audit work however is being
performed in two stages – some work before the year-
end and some work after the year-end
Fraud and error
• Fraud is an intentional act by one or more
individuals among management, those
charged with governance, employees or third
parties, involving the use of deception to
obtain an unjust or illegal advantage
• Fraud can be split into two types:
Fraudulent financial reporting
Misappropriation of assets
Fraud and error
• An error can be defined as an unintentional
misstatement in financial statements,
including the omission of amounts or
disclosures,
• Error of omission
• Error of commission
• Error of duplicate
• Error of principles
Directors’ responsibilities in respect of fraud

• The primary responsibility for the prevention


and detection of fraud rests with those
charged with governance and the
management of an entity. This is achieved by
• Implementing an effective system of internal
control
• Creating a culture of honesty and ethical
behavior, to those charged with governance.
Internal auditors
• Internal auditors can help management fulfill their
responsibilities in respect of fraud and error. Typical
functions the internal auditor can perform include:
• Testing the effectiveness of the internal controls
• Performing fraud investigations to identify:
– how the fraud was committed
– the extent of the fraud
– provide recommendations on how to prevent the
fraud from happening again.
External auditor's responsibilities in respect
of fraud
• Misstatement action that resulted in the
misstatement was intentional or
unintentional.
• The ability to detect fraud depends on the skill
of the perpetrator, collusion,relative size of
amounts manipulated, and the seniority of the
people involved
The auditor’s role / The auditor should

• Obtain reasonable assurance that the financial


statements are free from material
misstatement, whether caused by fraud or
error
• This means that the auditor must recognize
the possibility that a material misstatement
due to fraud could occur, regardless of the
auditor's prior experience of the client's
integrity and honesty
Laws and regulations
• Guidance relating to laws and regulations in
an audit of financial statements is provided in
ISA 250
• Non-compliance means acts of omission or
commission intentional or unintentional,
committed by the entity, which are contrary to
the prevailing laws or regulations
Quality control
• ISA 220 Quality Control for an Audit of
Financial Statements requires the firm to
establish a system of quality control to ensure
the firm complies with professional standards
and issues reports that are appropriate in the
circumstances.
Quality control
Policies and procedures should be established which
address
• Leadership responsibilities for quality within the firm
• Relevant ethical requirements
• Acceptance and continuance of client relationships
and specific engagements
• Human resources
• Engagement performance
• Monitoring
Audit documentation
• ISA 230 Audit Documentation, requires auditors
to prepare and retain written documentation
that:
• Provides a sufficient appropriate record of the
auditor’s basis for the auditor's report.
• Provides evidence that the audit was planned
and performed in accordance with ISAs and
applicable legal and regulatory requirements
• Retention period is 5 years
End

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