Professional Documents
Culture Documents
Audit Planning,
Understanding the
Client, Assessing
Risks and
Responding
Obtaining Clients
Submit a proposal
62
Topics
Disagreements over accounting principles
Predecessors understanding of reason for change
of auditors
Other
McGraw-Hill/Irwin
63
64
Stages of an
Audit--Diagram
McGraw-Hill/Irwin
65
McGraw-Hill/Irwin
Items Included in
Engagement Letters
66
Financial statements
Establishing effective internal control over financial reporting
Compliance with laws and regulations
Making records available to the auditors
Providing written representations at end of the audit, including
that adjustments discovered by the auditors and not recorded
to the financials are not material
Auditor responsibilities
McGraw-Hill/Irwin
Engagement Letters--Optional
Items
Arrangements regarding
67
McGraw-Hill/Irwin
Audit PlanningOverall
68
McGraw-Hill/Irwin
2. Obtain an Understanding
of the Client and its
Environment
69
McGraw-Hill/Irwin
610
Competitive position
Organizational structure
Accounting policies and procedures
Ownership
Capital structure
Product and service lines
Critical business processes
Internal control
McGraw-Hill/Irwin
611
Competitive environment
Supplier and customer
relationships
Technology developments
Major laws and regulations
Economic conditions
McGraw-Hill/Irwin
612
Barriers to entry
Strength of competitors
Bargaining power of suppliers of
raw materials and labor
Bargaining power of customers
McGraw-Hill/Irwin
613
ObjectivesOverall plans
Operating and financial strategies
Operational actions to achieve
objectives
Business risksThreats to
achieving objectives
McGraw-Hill/Irwin
614
Product differentiation
Cost leadership
McGraw-Hill/Irwin
615
Budgets
Key performance indicators
Segment performance reports
Balanced scorecard
External parties
McGraw-Hill/Irwin
616
Inquiries of management
Industry Accounting and Auditing Guides
Industry Risk Alerts
Trade journals and news stories
Government publications
Prior company annual reports and SEC
filings
Prior tax returns
Electronic sources
Tour of plant and offices
Analytical procedures
McGraw-Hill/Irwin
Overall approach
Particularly consider
617
Inherent risks
Risks of material misstatement due to
fraud (fraud risks)
McGraw-Hill/Irwin
Two types
618
McGraw-Hill/Irwin
619
Type
Significance
Likelihood that it will result in a
material misstatement
Pervasiveness
McGraw-Hill/Irwin
Overall response
620
McGraw-Hill/Irwin
Consideration of Fraud
Throughout
the Audit
621
McGraw-Hill/Irwin
Types
622
Tests of controls
Analytical procedures
Tests of details of transactions and
balances
Audit procedures
Inspection
Observation
Inquiry
Confirmation
Recalculation
Reperformance
McGraw-Hill/Irwin
623
McGraw-Hill/Irwin
Objectives of Substantive
Programs
for Asset Accounts
624
McGraw-Hill/Irwin
McGraw-Hill/Irwin
625
McGraw-Hill/Irwin
626
627
Financial
Statement
Assertions
to the
Audit
McGraw-Hill/Irwin
628
McGraw-Hill/Irwin
629
Relationships
among Audit
Objectives,
Risks of Material
Misstatement,
and Audit
Procedures
McGraw-Hill/Irwin