Lecture Notes Ch. 8 (ACCT-422)

Lecture Notes Ch. 8 (ACCT-422) - Chapter 8 Audit Planning...

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Chapter 8 Audit Planning and Analytical Procedures The 1 st field work standard of GAAS imposes on an auditor an obligation of adequately planning the audit. Chapter 8 discusses the steps involved in the audit planning process as well as the usefulness of analytical procedures in the planning process, especially in helping the auditor gain an understanding of the client’s business and industry. Client acceptance and initial audit planning Initial audit planning consists of 4 parts: 1) evaluating whether to accept a new client or to continue with an existing audit client; 2) determining the client’s reason for the audit; 3) obtaining an understanding with the client about the terms of the engagement; and 4) developing an overall strategy for the audit. Early on, the auditor must decide whether to accept a new client or to continue with an existing audit client. In deciding whether to accept a new client, the audit firm should investigate the client and its management. In the case of new clients that have previously been audited by another CPA firm, AU 315 requires the new auditor (successor auditor) to communicate with the client’s predecessor auditor. In communicating with the predecessor auditor, the successor auditor may learn that the predecessor auditor and client severed their relationship due to disagreements over accounting principles or audit procedures, or that the client’s management lacks integrity. For confidentiality reasons, the predecessor auditor is required to obtain permission from its former client prior to disclosing any information to the successor auditor. If the client refuses to permit the predecessor auditor to communicate with the successor auditor, the successor auditor should consider treating the refusal as a scope limitation and decline the engagement.
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