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Audit Planning and Materiality
Audit Planning and Materiality
PLANNING
AND
MATERIALITY
CHAPTER 8
Three main reasons that the auditor should properly plan the
audit engagement:
• Enable the auditor to obtain sufficient appropriate evidence for
the circumstances.
• Help keep audit costs reasonable.
• Avoid misunderstandings with the client.
The eight major steps in audit planning are detailed in Figure 8-1.
Select Staff for Engagement and Evaluate Need for Outside Specialists
The CPA firm must select staff for the engagement who are knowledgeable
about the client’s business. If the CPA firm lacks expertise, they may need to
hire outside specialists.
If the client has set unreasonable objectives, especially when employees are
incentivized to meet performance goals, there may be an incentive for
aggressive accounting, which increases the risk of financial statement
misstatement.
There are five steps to applying materiality as noted in Figure 8-5. The
first two are part of the planning process.
The last three steps in applying materiality are illustrated in Table 8-2.