Beginning the Audit Report
January 12, 2015
Beginning the Audit Report
January 12, 2015
Mr. Arnold Anderson
Anderson, Old, and Watershed, CPAs, LLC
Shoetown, ME 00001
Dear Mr. Anderson:
This is letter is to inform you of the plans for the beginning of the audit process that we plan to take to complete the audit of Apollo Shoes. There are many parts to the process and we will discuss each within this letter. The beginning of the audit process is to describe the objectives of the audit, and the responsibilities and strategies to complete the audit.
The primary objective of the audit is to issue an opinion on the financial statements of the company. With this opinion, the users of the financial statements are able to know that the financial statements are presented fairly and in accordance with the Generally Accepted Accounting Principles. “An auditor’s opinion enhances the degree of confidence that intended users can place in the financial statements” (Arens, Elder, & Beasley, 2014). If the statements are not fairly stated, then we will notify all users with the report.
Next are the responsibilities of the management and the auditors. Management is responsible for many things from ensuring that internal controls are in place, fraud risks are identified, and effective governance is established (University of Nebraska-Lincoln, 2015). With these responsibilities accomplished, the users have assurance that the financial information is reliable. The auditor’s main responsibility is to detect any material misstatements that may have been found within the financial statements. The auditor will use the Generally Accepted Auditing Standards as a framework for the audit.
Some strategies for completing the audit are first to obtain sufficient evidence to support all of the information given and the assertions of management about the financial statements. Also before the audit is even completed, “the auditor must have a thorough understanding of the client’s business and related environment, including knowledge of strategies and processes” (Arens, et al., 2014).
Analytical procedures are used during an audit to gain some knowledge of Apollo’s business and its risks. “Business risks are the factors that could prevent or hinder the achievement of organizational goals and objectives” (Accounting Simplified, 2013). The procedures that are done can be as simple as comparing the financial ratios of Apollo with prior years or even the average of the other companies in the same industry. If the ratios are different by a large amount, then the auditor can look into the parts of the ratios and may find a misstatement. The analytical procedures are performed during the planning, testing and completion phases. In the planning part of the audit, the procedures help identify significant matters requiring special consideration later in the audit (Arens, et al., 2014). During the testing or conducting part of the audit, the procedures support the data from the account balances. The auditor computes the ratios and compares them with the expected ratios. The auditor must include all documentation of these test ratios. Finally, the tests are done to take a last look for any misstatements that may have been missed. This final look is usually done by the more experienced partner of the audit firm.
When designing the audit, we will be also discussing the consideration of materiality and risk. Materiality is the measure of the estimated effect that the presence or absence of an item of information may have on the accuracy or validity of a financial statement. When a material misstatement is found, the auditor will have to convey it to the company. The application of materiality is done in a couple of steps. The auditor will determine the performance materiality as well as the materiality of the statements as a whole first. Then the auditor will estimate the each...
References: Accounting Simplified. (2013). Audit Riskes & Business Risks. Retrieved from http://accounting-simplified.com/audit/risk-assessment/audit-risk-business-risk.html
University of Nebraska-Lincoln. (2015, Winter). Management 's Responsibilities. Retrieved from http://audit.unl.edu/managements-responsibilities
Engagement Checklist, Timeframes and Milestones
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