Auditing Summary

Chapter 8 Audit Planning and Analytical Procedures PLANNING Why auditor should properly plan engagements: a. To enable the auditor to obtain sufficient appropriate evidence for the circumstances b. To help keep audit costs reasonable c. To avoid misunderstanding with the clients Acceptable Audit Risk is a measure of how willing the auditor is to accept that the F/S may be materially misstated after the audit is completed and an unqualified opinion has been issued. When auditor decides on a lower acceptable audit risk, it means that the auditor wants to be more certain that the F/S are not materially misstated. *risk can not be eliminated because not all of evidence being examine. Inherent Risk is a measure of the auditor’s assessment of the likelihood that there are material misstatements in account balance before considering the effectiveness of internal control. If the auditor concludes that there is a high likelihood of material misstatement in A/R due to changing of economic conditions, the auditor concludes that inherent risk for A/R is high. Planning an Audit and Designing an Audit Approach I. Accept Client and Perform Initial Audit Planning a. The auditor decide whether to accept a new client or continue serving an existing one. b. The auditor identifies why the client wants or needs an audit c. To avoid misunderstanding, the auditor obtains an understanding with the client about the terms of engagement. d. The auditor develops an overall strategy for the audit, including engagement atffing and any required audit specialists New Client Investigation Continuing Clients Identify Client’s Reasons for Audit Obtain an understanding with the client Develop Overall audit strategy Select staff for engagement Evaluate need for outside specialist

1. 2. 3. 4. 5. 6. 7.

II.

Understand the Client’s Business and Industry Why is it important?  General Standard: “The auditor must obtain a sufficient understanding of the entity and its environment, including its