The aim of this report is to develop an audit plan using the 2007/2008 annual reports of the WesFarmers. This report will provide an understanding of the underlying concepts of an overall audit strategy. This strategy will bring forward the direction and scope of the WesfFarmers audit plan. This report will address five major points these are as follows:
•Understanding the entity and its environment
•Making preliminary judgements about materiality levels
•Considering the audit risk
•Understanding internal control structure
•Developing preliminary audit strategies for significant assertions
The main source used in planning the audit is the WesFarmer’s annual financial report together with the relevant auditing standards: •ASA300 - Planning an Audit of a Financial Report
•ASA315 - Understanding the entity and its environment and assessing the risk of material misstatement •And ASA 320- Materiality and audit adjustments
In order to complete the planning of the audit the following assessments of the major statements were undertaken these are as follows, Income Statement, Balance sheet, Cash flow statement and changes in equity statements.
In order to prepare an audit plan in a timely and efficient way, it is essential that a proper strategy is put in together. There are many areas that need to be addressed thoroughly to ensure that the correct outcomes are established.
The following are the key areas discussed in the report:
Initially the auditor must first understand the entity and its environment. Auditor can find this information by analysing the entities internal and external information. In the following procedure the auditor will assess any risks which might influence his/ her reporting issues and application of substantive procedures.
Further, the auditor must make preliminary judgements about the materiality levels the auditor must analyse the entities financial controls and the class of transactions. The auditor must also consider the audit risks involved, usually which are detection, inherent and control risk underlying an audit. Moreover, it is important to take into consideration the internal control structure of entity.
Finally it is essential for the auditor to develop preliminary audit strategies for significant assertions; the two main audit strategies are the preliminary substantive approach and the lower assessed level of control risk approach. These approaches are the main components of audit strategies which the auditor has to understand before making the audit plan. Audit plan
Audit planning is a crucial process to develop an overall plan for the conduct and scope of the audit (Leung, 2007). As per ASA 300, adequate planning helps to ensure that appropriate attention is given to material areas of the audit, that problems are identified properly, and that work is completed expeditiously. Also, audit planning is like a map for the effective application of audit procedures. The following outlines how the audit will be done within Wesfarmers.
Obtain an understanding of the entity and its environment
Before actually implement auditing, the auditor shall understand the entity and what environment it is in. According to para. 5 of ASA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, the auditor should understand the entity and its environment, including the internal control so as to identify and assess the risks of material misstatement of its financial reports. What’s more, this understanding gives a framework for the overall audit approach which will be unique to the particular entity. Consequently, the auditor can tailor audit according to Wesfarmers’ environment. ASA 315 provides the key steps in how to understand the entity and its environment:
Industry, regulatory and other external factors
Applying to Wesfarmers case, it engages more than one industries, from retail...