J.C Penney Forecast
I. DEMAND FOR AUDIT SERVICES & THE PROFESSION
* ISQ1 – failure to conduct audit
II. CLIENT ACCEPTANCE * Importance of an auditing firm having a formalized client acceptance & continuance process * Audit Quality * Assumed Business Risk * 4 principle factors you would consider in arriving at decision to accept a client [QC 10, AU 315] * Integrity of Client Management * Likelihood of financial statement misrepresentation increases when the client’s management lacks integrity. * Ability to Meet Reporting Deadlines * Affected by timing and complexity of the engagement, and availability of audit staff * Independence Issues * Must be independent at the time of acceptance, and be able to maintain independence throughout the engagement. * Competency * Firm must have personnel with experience and availability
* What is required within the documentation understanding of the terms of the engagement (engagement letter)? * Timing of the audit * Assistance expected from client * Specialists and internal auditor involvement * Arrangement involving predecessor auditor * Fees and billing arrangements * Conditions under which access to audit documentation may be granted * Other services enumerated * Users of reports * Request the client to sign the engagement letter and return it to the auditor
III. RISK ASSESSMENT * What is the purpose of performing a risk assessment during the financial statement audit? * Used to obtain an understanding of the entity and its environment, including its I/C, in order to assess the risk of material misstatement. * Determines the nature, extent, and timing of further audit procedures.
* Risk of material misstatement comprises 2 separate risks * Inherent Risks * Susceptibility of a relevant assertion to a material misstatement *
* ISQ1 – failure to conduct audit
II. CLIENT ACCEPTANCE * Importance of an auditing firm having a formalized client acceptance & continuance process * Audit Quality * Assumed Business Risk * 4 principle factors you would consider in arriving at decision to accept a client [QC 10, AU 315] * Integrity of Client Management * Likelihood of financial statement misrepresentation increases when the client’s management lacks integrity. * Ability to Meet Reporting Deadlines * Affected by timing and complexity of the engagement, and availability of audit staff * Independence Issues * Must be independent at the time of acceptance, and be able to maintain independence throughout the engagement. * Competency * Firm must have personnel with experience and availability
* What is required within the documentation understanding of the terms of the engagement (engagement letter)? * Timing of the audit * Assistance expected from client * Specialists and internal auditor involvement * Arrangement involving predecessor auditor * Fees and billing arrangements * Conditions under which access to audit documentation may be granted * Other services enumerated * Users of reports * Request the client to sign the engagement letter and return it to the auditor
III. RISK ASSESSMENT * What is the purpose of performing a risk assessment during the financial statement audit? * Used to obtain an understanding of the entity and its environment, including its I/C, in order to assess the risk of material misstatement. * Determines the nature, extent, and timing of further audit procedures.
* Risk of material misstatement comprises 2 separate risks * Inherent Risks * Susceptibility of a relevant assertion to a material misstatement *