12/27/2016 1 Auditing Lecture 11 Chapter 8: Audit planning 1 Dr. Mohamed Elmaghrabi Notes on audit evidence and reliability levels Audit evidence type Level of reliability Physical examination High Confirmation Medium/high Documentation Low (internal); Medium (external) Analytical procedures Medium Inquiries of client Low Recalculation High Reperformance High Observation Low/Medium 2 Dr. Mohamed Elmaghrabi
12/27/2016 2 Chapter 8: Audit planning and analytical procedures • The first generally accepted auditing standard of field work requires adequate planning: The auditor MUST adequately plan the work and MUST properly supervise the assistants. 3 Dr. Mohamed Elmaghrabi Reasons of auditor planning of audit engagements • Three main reasons: 1. To obtain sufficient appropriate evidence for the circumstances (in order to minimize legal liability and maintain a good reputation in the business community) 2. To help keep audit costs reasonable to remain competitive 3. To avoid misunderstandings with the client for good client relations and for facilitating high-quality work at reasonable cost 4 Dr. Mohamed Elmaghrabi
12/27/2016 3 Two risks significantly influence the conduct and cost of audits. • Acceptable audit risk is a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued. – Lower acceptable audit risk means that the auditor wants to be more certain that the financial statements are not materially misstated. • Inherent risk is a measure of the auditor’s assessment of the likelihood that there are material misstatements in an account balance before considering the effectiveness of internal control. • Assessing acceptable audit risk and inherent risk is important to determine the amount of evidence that will need to be accumulated and staff assigned to the engagement. 5 Dr. Mohamed Elmaghrabi Eight parts of the audit planning 6 Dr. Mohamed Elmaghrabi
12/27/2016 4 Part 1: Accept the client and perform initial audit planning • This step involves four things: 1. Client acceptance and continuance 2. Identify client’s reasons for audit 3. Obtain an understanding with the client 4. Develop overall audit strategy 7 Dr. Mohamed Elmaghrabi Part 1: Accept the client and perform initial audit planning 1. Client acceptance and continuance • The auditor decides whether to accept a new client or continue serving an existing one. This determination is typically made by a experienced auditor who is in a position to make important decisions. The auditor wants to make this decision early , before incurring any significant costs that cannot be recovered.
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- Fall '16
- taher refaat
- Accounting, auditing standards