3air_im05 - 91 CHAPTER 5 Audit Planning with Analytical...

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CHAPTER 5 Audit Planning with Analytical Procedures, Risk, and Materiality LEARNING OBJECTIVES Review Checkpoints Exercises and Problems Cases 1. Perform analytical procedures using unaudited financial statements to identify potential problems in the accounts. 1, 2, 3, 4, 5, 6, 7 38 18, 19, 42 2. Analyze a materiality determination case and decide upon a maximum amount of misstatement (planning materiality) acceptable in a company's financial statements. 8, 9, 10, 11 39, 40 20 3. Assign an overall planning materiality amount to the tolerable misstatement amounts for particular accounts. 20 4. Describe the conceptual audit risk model and explain the meaning and importance of its components in terms of professional judgment and audit planning. 12, 13, 14, 15 41 5. Describe the content and purpose of audit programs. 16, 17 POWERPOINT SLIDES PowerPoint slides are included on the website. Please take special note of: * Purpose of Analytical Tests * Preliminary Assessment of Audit Risks * Goal of Audit SOLUTIONS FOR REVIEW 5.1 Five types of general analytical review procedures: 1. Compare financial information with prior period(s). 2. Compare financial information with budgets or forecasts. 3. Study predictable financial information patterns based on the entity's experience. 4. Compare financial information to industry statistics. 5. Study financial information relationships to nonfinancial information. 91
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5.2 The purpose of performing preliminary analytical procedures in the audit planning stage is to direct attention to potential problem areas so the audit work can be planned to reduce the risk of missing something important. 5.3 Official documents and authorizations that can be studied along with a preliminary analytical review: Corporate charter Corporate bylaws Articles of partnership Directors' minutes Executive committee minutes Audit committee minutes Finance committee minutes New contracts and leases 5.4 Officers' Compensation Authorization of officers' salaries. Authorization of stock options and other "perk" compensation. Business Operations Amount of dividends declared. Acceptance of contracts, agreements, lawsuit settlements. Approval of major purchases of property and investments. Discussions of merger and divestiture progress. Corporate Finance Amount of dividends declared. Discussions of merger and divestiture progress. Authorization of financing by stock issues, long-term debt, and leases. Approval to pledge assets as security for debts. Discussion of negotiations on bank loans and payment waivers. Accounting Policies and Control Approval of accounting policies and accounting for estimates and unusual transactions. Authorizations of individuals to sign bank checks.
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3air_im05 - 91 CHAPTER 5 Audit Planning with Analytical...

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