audit plan - Analyze the importance of an audit plan and...

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

View Full Document Right Arrow Icon
Analyze the importance of an audit plan and its impact on the auditor and the client. An efficient and effective audit can only be performed if the audit has been thoroughly and properly planned. Often in practice, 40% of the time is spent on planning 20% doing and 40% review. Adequate audit planning will ensure that appropriate attention is given to crucial areas of the audit and that potential problems are identified on a timely basis. At the planning stage the audit engagement partner should assign the necessary staff who possess the skills and ability required in order to ensure the audit is carried out efficiently and in accordance with the International Standards on Auditing. If planning is not adequate, the auditor may overlook necessary testing of a key area and instead devote too much attention to a less critical item. Without adequate planning, there is a risk that the audit opinion will not be not properly supported, because the firm has failed to perform and record necessary procedures to obtain the audit evidence required. Compare and contrast the five types of analytical procedures. Determine for which situations each is best suited. Defend your answer. The auditor can use one or more of five types of analytical procedures. In each case, auditors compare client data with: 1. Industry data While comparisons to industry statistics can provide useful information, the auditor should be satisfied that the data is comparable. Meaningful comparisons can be difficult, primarily because: Industry data are broad averages and the client’s particular business may not be the same as the industry averages. The organization of industry statistics by Standard Industry Classification (SIC) code may result in comparisons of diversified entities with an entity that operates in only one industry. Different companies follow different accounting methods (e.g., FIFO versus LIFO for inventory valuation and straight-line versus double-declining- balance for depreciation). This does not mean that industry comparisons should not be made. On the contrary, their principal value may be the questions they raise. However, auditors should exercise judgment in selecting industry data for analytical procedures and in analyzing and evaluating the comparison results. For example, if the company has lost market share, its pricing may not be competitive, it may have incurred abnormal costs, or it may have obsolete items in inventory. 2. Similar prior period data In some circumstances, two year comparisons are sufficient to identify fluctuations that would require follow-up. In other circumstances, comparative analysis over a number of years (trend analysis) often can be more informative. Examples of trend analyses include: Comparing the current year’s account balance with that of the prior year. Comparing the detail of the current year’s account balance with that of the prior
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 06/03/2011 for the course ACCOUNTING 304 taught by Professor Charlesworthjoseph during the Spring '09 term at Strayer.

Page1 / 4

audit plan - Analyze the importance of an audit plan and...

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