132CHAPTER 6 - Planning the Audit Linking Audit Procedures...

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1 Bob Anderson, UCSB CHAPTER 6-1 6 CHAPTER Planning the Audit; Linking Audit Procedures to Risk Bob Anderson, UCSB Chapter 6-2 REQUIREMENT FIRST STANDARD OF FIELDWORK: AN AUDIT IS TO BE ADEQUATELY PLANNED AND SUPERVISED. RECALL THAT ANALYTICS ARE REQUIRED DURING PLANNING Bob Anderson, UCSB Chapter 6-3 Items Included in Engagement Letters ± Name of the entity ± Management responsibilities ± Financial statements ± Establishing effective internal control over financial reporting ± Compliance with laws and regulations ± Making records available to the auditors ± Providing written representations at end of the audit, including that adjustments discovered by the auditors and not recorded to the financials are not material ± Auditor responsibilities ± Conducting an audit in accordance with GAAS/ PCAOB (if public) ± Obtaining an understanding of internal control to plan audit and to determine the nature, timing and extent of procedures ± Making communications required by GAAS ± FEES! Payment terms & anything else the parties negotiate Bob Anderson, UCSB Chapter 6-4 Engagement Letters--Optional Items ± Arrangements regarding ± Conduct of the audit (e.g., timing, client assistance) ± Use of specialists or internal auditors ± Obtaining information from predecessor auditors ± Fees and billing ± Other services to be provided, such as examination of internal control over financial reporting ± Limitation of or other arrangements regarding liability of auditors or client ± Conditions under which access to the auditors’ working papers may be granted to others
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2 Bob Anderson, UCSB Chapter 6-5 Audit Planning Decide whether to accept/ Renew the prospective client Obtain/ Update knowledge of client’s business and environment Make preliminary arrangements with the client Prepare the engagement letter Assess risks of material misstatement, including fraud risk Prepare the audit plan, preliminary program, and time budget ENGAGEMENT RISK Bob Anderson, UCSB Chapter 6-6 Understanding the Client’s Business—Nature of the Client ± Competitive position ± Organizational structure ± Accounting policies and procedures ± Ownership ± Capital structure ± Product and service lines ± Critical business processes ± Internal control Bob Anderson, UCSB Chapter 6-7 From a BIG 4 audit partner to you: PCAOB comments ± Fraud procedures (SAS 99) – modifying the nature, timing and extent of our procedures – how did we do so? Did we talk to different people this year, use different scopes, etc. ± Have you evaluated who the end users of the financials are and what is important to those users (where documented). ie banks, lenders, shareholders, analysts. Have you evaluated what is material to the users – both qualitatively and quantitatively.
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132CHAPTER 6 - Planning the Audit Linking Audit Procedures...

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