AUDIT AND ASSURANCE SERVICES (INTERNATIONAL STREAM)
Audit Planning and Risk Assessment
ISA 300 AUDIT PLANNING
Auditors should plan the audit so that the engagement is conducted in an effective manner.
The objectives of planning include:-
• Directing appropriate attention to the different areas of the audit such as assessing materiality, so that when the detailed audit plan is prepared, audit procedures can be directed towards the material amounts. • Identify potential problems or risks so that they can be resolved at an early stage. • Facilitate review and control of the audit.
• Assigning and briefing staff with appropriate skills, knowledge, training, proficiency. • Coordinating the work of others such as that of experts. • Obtaining knowledge and understanding of the client’s business. • Providing an economic and effective service within appropriate timescales
Planning an audit will permit development of:-
• An audit strategy based on risk analysis
• An audit plan that addressing the risks identified.
• Review the previous years working papers
• Identify problem areas encountered
• Determine staffing requirements
• Obtain an indication of time required
• If the client is new, review the previous auditors’ working papers to obtain closing balances which will affect this year’s financial statements. • Determine the trading pattern and problems faced by the client company. • Establish timetable, important dates and deadlines
• Assess the effect of changes from previous year:
2. Law and regulation
3. Accounting policies
5. Other relevant matters
• Perform analytical review or procedures on the latest accounts. • Request preparation of cash and profit projections where solvency problems are foreseen. • Review the work of internal audit.
• Evaluate whether reliance on other expert is necessary • Allocate and brief audit staff.
ISA 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment
1. The auditor should perform risk assessment procedures in order to identify and assess the risks of material misstatement. Risk assessment procedures include:- • Making inquiries of management and others within the entity • Discuss with the client's management about its objectives and expectations, and its plans for achieving those goals • Observation and inspection
• Perform analytical procedures to help the auditor in identifying unusual transactions. 2. The auditor should obtain an understanding of the entity and its environment, including the entity's internal control systems. Understanding of the entity and its environment will help the auditor to identify the risks of material mis-statement; will provide the auditor with a basis for designing and implementing responses to assessed risk and to ensure that sufficient appropriate audit evidence is collected. An understanding of the entity can be obtained through understanding • Relevant industry, regulatory, and the applicable financial reporting framework • The nature of its operations; its ownership structure and governance structure • The market and its competition
• Nature of products/services and markets
• Location of production facilities and factories
• Key customers and suppliers
• Capital investment activities
• Significant changes over prior years.
3. The auditor should identify and assess the risks of material misstatement, and determine whether any of the risks identified are significant risks. This will help the auditor to design and perform further audit procedures.