Chapter 8 - Chapter 8 Audit Planning and Analytical...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Chapter 8 Audit Planning and Analytical Procedures Review Questions 8-2 Eight major steps in planning audits are: 1. Accept client and perform initial planning 2. Understand the client’s business and industry 3. Assess client business risk 4. Perform preliminary analytical procedures 5. Set materiality, and assess acceptable audit risk and inherent risk 6. Understand internal control and assess control risk 7. Gather information to assess fraud risks 8. Develop overall audit plan and audit program 8-3 The new auditor (successor) (SA) is required by SAS 84 (AU 315) to communicate with the predecessor auditor (PA). This enables the successor to obtain information about the client so that he or she may evaluate whether to accept the engagement. Permission must be obtained from the client before communication can be made because of the confidentiality requirement in the Code of Professional Conduct . The predecessor (PA) is required to respond to the successor’s (SA) request for information; however, the response may be limited to stating that no information will be given. The successor auditor (SA) should be wary if the predecessor (PA) is reluctant to provide information about the client. 8-4 Prior to accepting a client, the auditor should investigate the client. The auditor should evaluate the client’s standing in the business community, financial stability, and relations with its previous CPA firm. The primary purpose of new client investigation is to ascertain the integrity of the client and the possibility of fraud. The auditor should be especially concerned with the possibility of fraudulent financial reporting since it is difficult to uncover. The auditor does not want to needlessly expose himself or herself to the possibility of a lawsuit for failure to detect such fraud. 8-5 SAS 108 requires the auditor to document their understanding of the terms of the engagement with the client in an engagement letter. The engagement letter should include the engagement’s objectives, the responsibilities of the auditor and management, and the engagement’s limitations. An engagement letter is an agreement between the CPA firm and the client concerning the conduct of the audit and related services. It should state what services will be provided, whether any restrictions will be imposed on the auditor’s work, deadlines for completing the audit, and assistance to be provided by client personnel. The engagement letter may also include the auditor’s fees. In addition, the engagement letter informs the client that the auditor cannot guarantee that all acts of fraud will be discovered. 8-8 The second standard of fieldwork requires the auditor to obtain an understanding of the entity and its environment. Auditors need an understanding of the client’s business and industry because the nature of the business and industry affect business risk and the risk of material misstatements in the financial statements . Auditors use the knowledge of these risks to assess the risk of material misstatement and to
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/23/2011 for the course ACC 123 taught by Professor W during the Spring '11 term at Prince George's Community College, Largo.

Page1 / 5

Chapter 8 - Chapter 8 Audit Planning and Analytical...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online