AUD 03 - AUD Notes Chapter 3 http/

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AUD - Notes Chapter 3 Planning and Supervision TIP P IE ACDO The audit committee is responsible for the selection and the appointment of the auditor and the reviewing the nature and scope of the engagement In a new client relationship, it is mandatory to make inquiries of the predecessor auditor. Client permission is needed. If the client is unwilling it is a scope limitation. Before accepting the client, inquiry the old CPA regarding: Information that may reveal mgmt integrity Disagreements with mgmt (accounting principles, auditing procedures) Reasons for change of auditor Communication to the audit committee regarding fraud, illegal acts, internal control matters After acceptance, inquiry the old CPA regarding: Make specific inquiries about the audit Review predecessors audit documentation (workpapers) Preliminary Engagement Activities Assess the integrity of mgmt Assess the availability and adequacy of the clients accounting records (lack of records = scope limitation) Evaluate the firm’s quality control policies and procedures An engagement letter – a signed contract which documents the understanding with the client is required for an audit engagement (should be signed and dated by the client) Management’s is responsible for: The F/S Internal controls Compliance with laws Representation letter (letter to auditor at end of the engagement that confirms the representation made) Auditor is responsible for: Conduct the audit in accordance with GAAS (obtain reasonable assurance about whether the F/S are free from material misstatements An audit is not designed to detect error or fraud that is immaterial to the F/S An audit is not designed to provide assurance on internal control or to identify significant deficiencies Audit is subject to inherent risks that errors and fraud will not be detected. If we discover fraud then we report it to the audit committee Planning the Audit The nature, extent and timing of planning procedures will vary based on the engagement (the NET we cast over the audit) The auditor is required to obtain an understanding of the entity, its environment and internal controls Obtain knowledge about the clients industry and business through: Audit guides, trade publications and public information 1
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AUD - Notes Chapter 3 Tour client facilities Review financial history of client Obtain understanding of client accounting Inquire of client personnel Analytical Procedures used for: For planning the nature, extent, and timing of other audit procedures (required) Substantive tests to obtain evidential matter (optional) Overall review in the final stage of the audit (required) Analytical procedures performed during planning Used to enhance the auditors understanding, and identify unusual transactions, events and amounts During planning, analytical procedures consist of a review of data aggregated at a high level, such as
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AUD 03 - AUD Notes Chapter 3 http/

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