Chapter 8 Instructor's Guide

Chapter 8 Instructor's Guide - Chapter 8 Audit Planning and...

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Chapter 8 Audit Planning and Analytical Procedures Chapter 8 emphasizes understanding the client’s business and industry and assessing client business risk, two concepts that are receiving increased emphasis in audit practice. The amount of time you spend on this chapter is mostly dependent on the emphasis you want to put on understanding the client’s business and analytical procedures. The following are the topics we cover: Chapter opening vignette Purpose and methodology of audit planning Client acceptance and continuance Obtain knowledge of client's industry and business Assess client business risk Analytical procedures Chapter Opening Vignette – “The Fall of Enron: Did Anyone Understand Their Business?" The bankruptcy of Enron is used to illustrate how important understanding a client’s business is to conducting an adequate audit, which is now a required component of the second GAAS fieldwork standard. Enron was involved in new markets as a result of deregulation and the development of new financial trading instruments. It also engaged in complex arrangements with related parties. Many argue that members of the board of directors, senior management, and the auditors, among others, had a poor understanding of the nature of the business and related business risks at Enron. You might ask students what they know about Enron, and how an auditor could evaluate the risks from new markets and related party transactions. We note that related parties have been present in many other significant legal cases involving auditors. Purpose and Methodology of Audit Planning (page 208) The effect of planning on audit efficiency and effectiveness is the major emphasis in discussing the purpose of planning. Figure 8-1 (page 209) is the focal point for planning in Chapters 8 through 13 and we refer to it frequently. Only the first four sections are discussed in Chapter 8. We emphasize the items discussed in the following sections. Figure 8-5 (page 222) summarizes that discussion. (See Figures 8-1 and 8-5) 8-1
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Client Acceptance and Continuance (page 209) We tie this into SAS 84 (AU 315). What are the requirements under SAS 84 before the CPA accepts a new
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Chapter 8 Instructor's Guide - Chapter 8 Audit Planning and...

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