1. Audit Planning and Documentation

2. What are the main reasons for audit planning?
- to enable the auditor to obtain sufficient appropriate evidence

3. What are the main reasons for audit planning?
- to enable the auditor to obtain suffi-
cient appropriate evidence

4. What are the main reasons for audit planning?
- to enable the auditor to obtain suffi-
cient appropriate evidence
- to help keep audit costs reasonable

5. What are the main reasons for audit planning?
- to enable the auditor to obtain suffi-
cient appropriate evidence
- to help keep audit costs reasonable
- to avoid misunderstandings with the
client

6. Steps in audit planning
preplan
obtain
background
information
obtain
information
about
client’s legal
obligations
perform
preliminary
analytical
procedures

7. early brainstorming about the audit
preplan
early brainstorming
about the audit

8. early brainstorming - client acceptance issues What potential
preplan
- client acceptance issues
What
potential
client might the
auditor turn
down?

9. early brainstorming - client lacking integrity - financially
preplan
- client acceptance issues
- client lacking
integrity
- financially
unstable client
- client unable to
pay audit fees
What
potential
client might the
auditor turn
down?

10. Predecessor and Successor Auditors
- Rules of Professional Conduct require
the successor auditor to communicate
with the predecessor.
WHY?

11. Predecessor and Successor Auditors
- Rules of Professional Conduct require
the successor auditor to communicate
with the predecessor
WHY?
to facilitate the successor auditor’s
client acceptance decision

12. Predecessor and Successor Auditors
- Rules of Professional Conduct require
the successor auditor to communicate
with the predecessor
- the client must give permission for the
communication

13. Predecessor and Successor Auditors
- Rules of Professional Conduct require
the successor auditor to communicate
with the predecessor
- the client must give permission for the
communication
- the successor is required to initiate
the communication

14. Predecessor and Successor Auditors
- Rules of Professional Conduct require
the successor auditor to communicate
with the predecessor
- the client must give permission for the
communication
- the successor is required to initiate
the communication
- the predecessor is required to respond

15. early brainstorming - client acceptance issues
preplan
- client acceptance issues
If a prospective client has not been
audited before, the auditor may base
client acceptance on discussions with:
- lawyers
- banks
- other
businesses
BANK

16. WHY? early brainstorming - client acceptance issues
preplan
- client acceptance issues
- identify client’s reasons for an audit
WHY?

17. WHY? early brainstorming - client acceptance issues
preplan
- client acceptance issues
- identify client’s reasons for an audit
WHY?
The client’s motivation for the
audit is one of the major
factors affecting audit risk.

18. early brainstorming For a large business, what is the probable
preplan
- client acceptance issues
- identify client’s reasons for an audit
For a large business,
what is the probable
reason for an audit?

19. early brainstorming - client acceptance issues
preplan
- client acceptance issues
- identify client’s reasons for an audit
For a large business, what is the probable reason for an audit?
Companies subject to securities commission regulation are required
to have annual audits.

20. ? early brainstorming Because of audit risk, an auditor will
preplan
- client acceptance issues
- identify client’s reasons for an audit
Because of audit risk, an auditor will
typically gather more evidence for: ?

21. early brainstorming Because of audit risk, an auditor will
preplan
- client acceptance issues
- identify client’s reasons for an audit
Because of audit risk, an auditor will
typically gather more evidence for:
- publicly held clients
- clients with extensive indebtedness
- clients changing ownership
- newly formed, rapidly growing businesses

22. early brainstorming What is an engage- ment letter and why
preplan
- client acceptance issues
- identify client’s reasons for an audit
- obtain an engagement letter
What is an engage-
ment letter and why
is it necessary?

23. early brainstorming - client acceptance issues
preplan
- client acceptance issues
- identify client’s reasons for an audit
- obtain an engagement letter
The intent is to
document terms of the
audit and minimize
misunderstandings.

24. written by the auditor to
early brainstorming
preplan
- client acceptance issues
- identify client’s reasons for an audit
- obtain an engagement letter
The letter is
written by the auditor to
the client, then signed
by both.

25. early brainstorming The more specific, the better - including:
preplan
- client acceptance issues
- identify client’s reasons for an audit
- obtain an engagement letter
The more
specific, the better -
including:

26. early brainstorming The more specific, the better - including:
preplan
- client acceptance issues
- identify client’s reasons for an audit
- obtain an engagement letter
The more
specific, the better -
including:
fees
schedules
use of client
personnel

27. early brainstorming - client acceptance issues
preplan
- client acceptance issues
- identify client’s reasons for an audit
- obtain an engagement letter
When should the
letter be prepared
and signed?

28. early brainstorming When should the letter be prepared and signed?
preplan
- client acceptance issues
- identify client’s reasons for an audit
- obtain an engagement letter
When should the
letter be prepared
and signed?
in advance of any audit procedures

29. early brainstorming Considerations? - client acceptance issues
preplan
- client acceptance issues
- identify client’s reasons for an audit
- obtain an engagement letter
- select audit team
Considerations?

30. Considerations? early brainstorming - select audit team
preplan
- select audit team
Considerations?
- training and overall experience

31. Considerations? early brainstorming - select audit team
preplan
- select audit team
Considerations?
- training and overall experience
- industry and client experience

32. Considerations? early brainstorming - select audit team
preplan
- select audit team
Considerations?
- training and overall experience
- industry and client experience
- supervision

33. Considerations? early brainstorming - select audit team
preplan
- select audit team
Considerations?
- training and overall experience
- industry and client experience
- supervision
- need for specialists

34. Steps in audit planning
preplan
obtain
background
information
obtain
information
about
client’s legal
obligations
perform
preliminary
analytical
procedures

35. Why should the auditor obtain background information?

36. Why should the auditor obtain background information?
- to identify the need for outside
specialists

37. ? Why should the auditor obtain background information?
- to identify the need for outside
specialists
- to identify related parties ?

38. Why should the auditor obtain background information?
- to identify the need for outside
specialists
- to identify related parties
- affiliated company
- principal owner
- party that can influ-
ence management

39. requires disclosure of related party
obtain
background
information
Why should the auditor
obtain background
information?
- to identify the need for outside
specialists
- to identify related parties
GAAP
requires disclosure of related party
transactions.

40. Why should the auditor obtain background information?
- to identify the need for outside
specialists
- to identify related parties
What
audit procedures
may disclose
related parties?

41. Why should the auditor obtain background information?
- to identify the need for outside
specialists
- to identify related parties
- inquire of management
- review shareholder records
for principal shareholders

42. GAAS requires an extensive knowledge of the client’s
obtain
background
information
GAAS requires an extensive
knowledge of the client’s
business, industry and operations.

43. Why understand the client’s business, industry or operations?
obtain
background
information
Why understand the client’s business, industry or operations?

44. Why understand the client’s business, industry or operations?
obtain
background
information
- to determine if any unique accounting requirements exist

45. Why understand the client’s business, industry or operations?
obtain
background
information
- to determine if any unique accounting requirements exist
- to identify industry risks for setting acceptable audit risk

46. Why understand the client’s business, industry or operations?
obtain
background
information
- to determine if any unique accounting requirements exist
- to identify industry risks for setting acceptable audit risk
- to identify industry risks for setting inherent risk

47. Why understand the client’s business, industry or operations?
obtain
background
information
- Also helps in:
determining materiality
understanding internal control
identifying sources and nature of available audit evidence
understanding substance of transactions
assessing whether sufficient appropriate evidence is available
assessing appropriateness of accounting policies
evaluating overall financial statement presentation

48. What are the auditor’s sources of industry information?
obtain
background
information
What are the auditor’s sources of industry information?

49. What are the auditor’s sources of industry information?
obtain
background
information
- prior auditors
- firm industry experts
- CICA research studies, audit technique
studies and other publications
- industry journals and other literature
- discussions with management
- plant and office tour
- review of policies and procedures

50. is one reason why many auditors
obtain
background
information
Doe & Smith, public
accountants
“We know banks.
Banks know us.”
Industry diversity
is one reason why many auditors
specialize.

51. Steps in audit planning
preplan
obtain
background
information
obtain
information
about
client’s legal
obligations
perform
preliminary
analytical
procedures

52. obtain
information
about
client’s legal
obligations
how?

53. how? - study articles of incorporation & bylaws
obtain
information
about
client’s legal
obligations
how?
- study articles of incorporation & bylaws
Articles of Incorporation

54. how? - study articles of incorporation & bylaws - study minutes of
obtain
information
about
client’s legal
obligations
how?
- study articles of incorporation & bylaws
- study minutes of
board and share-
holder meetings
Minutes of
Board of Directors
Meetings
Ace Company

55. how? - study articles of incorporation & bylaws
obtain
information
about
client’s legal
obligations
how?
- study articles of incorporation & bylaws
- study minutes of board and share-
holder meetings
- study existing
contracts
...it’s a deal!!

56. Why is this part of audit planning?
obtain
information
about
client’s legal
obligations

57. Why is this part of audit planning?
obtain
information
about
client’s legal
obligations
Throughout the engage-
ment, auditors will be
observing evidence that
may relate to these items
and their disclosure.

58. Steps in audit planning
preplan
obtain
background
information
obtain
information
about
client’s legal
obligations
perform
preliminary
analytical
procedures

59. What is the
purpose of
preliminary
analytical
procedures?

60. What is the purpose of preliminary analytical procedures?
- understanding the
client’s industry
- assessing going
concern issues
- indicating possible
misstatements
- reducing detailed
tests
What is the
purpose of
preliminary
analytical
procedures?

61. What are working papers?

62. What are working papers?
auditor records of:
procedures
applied

63. What are working papers?
auditor records of:
procedures
applied
tests
performed

64. What are working papers?
auditor records of:
procedures
applied
tests
performed
information
obtained

65. What are working papers?
auditor records of:
procedures
applied
information
obtained
conclusions
reached
tests
performed

66. Working papers Their objective is to aid the auditor in
providing reasonable assurance that an
adequate audit was conducted in
accordance with GAAS.

67. Working papers Their objective is to aid the auditor in
providing reasonable assurance that an
adequate audit was conducted in
accordance with GAAS.
Working papers also provide:
- a basis for planning the audit
January

68. Working papers Their objective is to aid the auditor in
providing reasonable assurance that an
adequate audit was conducted in
accordance with GAAS.
Working papers also provide:
- a basis for planning the audit
- a record of the evidence accumulated
and the results of tests
Ace Co.
Audit File

69. Working papers Their objective is to aid the auditor in
providing reasonable assurance that an
adequate audit was conducted in
accordance with GAAS.
Working papers also provide:
- a basis for planning the audit
- a record of the evidence accumulated
and the results of tests
- data supporting the audit report

70. Working papers Their objective is to aid the auditor in
providing reasonable assurance that an
adequate audit was conducted in
accordance with GAAS.
Working papers also provide:
- a basis for planning the audit
- a record of the evidence accumulated
and the results of tests
- data supporting the audit report
- a basis for supervisor/partner review

71. Working papers include
current files and
permanent files. ?

72. Permanent files contain data of a historical nature of continuing relevance to current and future engagements.
PERMANENT

73. Permanent files contain data of a historical nature of continuing relevance to current and future engagements.
INCLUDE:
- copies of client documents of continu-
ing importance (e.g., articles of incor-
poration, bylaws, contracts)
CONTRACT
CONTRACT
Articles of Incorporation

74. Permanent files contain data of a historical nature of continuing relevance to current and future engagements.
INCLUDE:
copies of client documents of
continuing importance
- analyses from prior audits that have
continuing importance (e.g., bond
premium amortization, depreciation)

75. Permanent files contain data of a historical nature of continuing relevance to current and future engagements.
INCLUDE:
copies of client documents of
continuing importance
- analyses from prior audits that have
- internal control information (flow-
charts, descriptions of transaction
cycles)

76. Permanent files contain data of a historical nature of continuing relevance to current and future engagements.
INCLUDE:
copies of client documents of
continuing importance
- analyses from prior audits that have
- internal control information
- results of prior audit analytical
procedures

77. Does an audit client have a legal right to audit working papers?

78. Does an audit client have a legal right to audit working papers? NO!

79. audit working papers How does the provincial CA institutes’
Rules of Professional
Conduct apply?
audit working papers

80. audit working papers Confidential Client Information
A member in public practice shall not disclose
any confidential client information without the
specific consent of the client, or when
required by the courts of by the professional
accounting association...
audit working papers
During the course of an audit,
auditors obtain information of a
confidential nature which is
retained in the working papers.

81. What are working paper tick marks?
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& * “ < >

82. What are working paper tick marks?
~ # ^
& * “ < >
symbols of audit work completed