Financial audit is about the opinion expressed by auditor with all material respects and any relevant legislation for instance corporation act 2001. A good financial audit should be provided with true and fair view. It is responsible for auditors to provide a truth and fairness opinion as well as information involved in a financial report (MORONEY, CSMPBRLL & HAMILTON 2011). Pre-consideration of develop audit strategy is the assessments of materiality, audit risk (the relationship between inherent risk (IR) control risk (CR) and detection risk (DR)) as well as the control environment. After that the implication of develop an audit strategy and whether it is effectiveness or not and the limitation should be considered as well. At the end we need to evaluate the audit strategies. Audit strategy is the determination of the amount spent on testing the client’s internal controls and conducting detailed testing of transactions and account balances. This report is focus on how to develop an audit strategy in carrying out a financial audit. Several requirements need to be achieved and the evaluation of the audit strategies. Evaluate audit strategy is to check whether the strategy is useful or not in carrying out a financial audit. The last part included in financial audit is the material financial statement assertion. Financial statement is the important part within a financial audit. To consider that audit strategy is assumed to apply with the level of each material financial statement assertion. As we know that transactions and balances are interrelated by double-entry bookkeeping. If assertion of enough evidence of all transactions affect an account balance we obtained then there is no need to obtain evidence to the account balance itself.
Audit strategy approach
The diagram (COSSERAT 1999) below describes the approach to developing an audit strategy. (Diagram provided as Figure 1.1)
* To obtain the understanding of the accounting and internal control systems (required by audits) * Is it necessary to apply a lower assessed level of control risk strategy * If control risk cost effective then make a preliminary assessment of the control risk by evaluating design effectiveness (if it not cost-effective then plan the audit based on the predominantly substantive approach) * After preliminary assessment to ask is the control risk potentially less than high * Plan the audit using an approach based on a lower assessed level of control risk * Perform tests of operational effectiveness of control
* If the result of tests of control support the preliminary assessment then a reduced level of substantive procedures as planned (if the result of tests of control still support a level of control risk less than high (but not as low as the preliminary assessment) revise the audit plan and perform more extensive substantive procedure) * Is there any evidence from the substantive procedures that control risk is higher than assessed whatever the answer is yes or no it goes directly to evaluate evidence and form an opinion To form a basic assessment of risks of material misstatement required auditors’ assertions for account balance. Which assertion is to identify the transaction errors with account balance. Assertions can be classified as existence or occurrence, completeness valuation or allocation tights and obligations and presentation and disclosure. Audit risk
Preliminary assessment is made during the planning stage after obtaining an understanding of client. According to preliminary assessment of control risk auditors will draw up the audit programme incorporating both tests of control and substantive procedures (Essex, UK, 2006). To verify the control procedures are actually operating as lay down via tests of control design. It is better to wait until tests of control were completed before planning substantive procedures in some respects. Inherent risk (IR) is the probability of a material...