FS Audit

• Audit planning involves establishing the overall audit strategy for the engagement and developing an audit plan, to reduce audit risk to an acceptably low level.
• Planning is not a discrete phase of an audit, but rather a continual and iterative process that often begins shortly after the completion of the previous audit.
• The nature and extent of planning activities will vary according ti the following factors

  • The size & complexity of the entity
  • Changes in circumstances that occur during the audit engagement
  • The auditor's previous experience with and understanding of the entity
• Planning stage of audit - the time before fieldwork starts, when the auditor is gathering information about the client and its environment and designing overall strategy and audit plan
• True or false.

  It is not acceptable for an auditor to accept an audit engagement near or after year-end as late appointments pose limitations on the audit.

  False.
• To reduce audit risk to an acceptably low level, the auditor shall:

  1. Establish an overall audit strategy
  2. Develop an audit plan
• Audit plan includes a description of:

  • The nature, timing and extent of planned RAP
  • The nature, timing and extent of planned FAP yo be performed during testing stage

  1. TOC
  2. ST - TOD & AP
  3. Other planned audit procedures
• Audit planning also involves:

  1. Modifying the overall audit strategy and audit plan as necessary
  2. Planning the NTE of direction, supervision of audit engagement team members
  3. Other planning consi
  4. Determining the audit program
• Revision is necessary because of:

  • Unexpected events
  • Changes in conditions
  • Audit evidence obtained from the results of audit procedures
• Other planning considerations

  • Consider work of experts
  • Considering the work of other independent auditors
• An audit program is a listing of audit procedures that the auditor will perform to gather sufficient appropriate evidence. It provides a proof that the audit was adequately planned.
• True or false.

  An audit program at the beginning of the audit process is temporary because a complete audit program for an engagement generally should be developed after evaluation of internal control.

  True
• Establishing the overall audit strategy involves:

  1. Identifying the characteristics of the engagements that define its scope.
  2. Ascertaining the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required.
  3. Considering the factors that are significant in directing the engagement team's effort
  4. Considering the preliminary engagement activities
  5. Ascertaining the NTE of resources necessary to perform the engagement
• S1: The external auditor shouldn't consider the work of internal auditing to minimize audit costs

  S2: The auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by any use made of internal auditing.

  Only S2 is correct.
• Considering the work of IA involves 2 important phases:

  1. Prelim assessment of IA
  2. Evaluating and testing the work of IA
• Materiality is the amount at which judgement of informed decision makers based on the FS may be altered
• Documentation of materiality shall include:

  • Materiality level as a whole
  • Materiality level for particular class
  • Performance materiality
  • Any revision of materiality levels
• More evidence will be required for a low peso amount of materiality than for a high peso amount
• The lower the tolerable misstatement, the more extensive the required audit procedures
• Materiality at FS as a whole - is the smallest aggregate level that could misstate/disort any of the financial statements.
• Materiality at assertion level - materiality level for individual or particular class of transactions, account balance, or disclosure where appropriate; this is also known as tolerable misstatement
• Class of transactions - type of transaction processed by the client's accounting system, such as sales transactions
• Performance materiality - amount or amounts set by the auditor:

  • at less than materiality for FS as a whole
  • at less than materiality level
• Purpose of materiality level: it provides margin to reduce the possibility of undetected misstatements
• Risk assessment procedures - are audit procedures whose purposes include:

  1. To obtain understanding of the entity and its environment, including the entity's IC
  2. To identify ROMM, whether due to fraud or error at the FS and assertion levels