Audit Planning
Some readers with grey hair like mine will remember the days
of planning audits in the back seat of the car on the way to a client’s office!
Those days passed away as we realized the specific requirements for planning in
the audit standards. Once our audit engagement teams established a paradigm for
effective audit planning, we also began to realize the time saving benefits
that resulted from well-planned audit engagements.
Like the other so-called risk assessment standards, AU-C
Section 300 is a redraft of the 2006 audit standards. Requirements for the preliminary engagement
activities are presented below, followed by a list of practical activities that
are normally necessary for effective engagement planning.
Preliminary
Engagement Activities
These are required engagement pre-planning activities:
- Performing client acceptance and engagement continuance activities required by Section AU-C 220 on quality control.
- Evaluating ethical requirements, particularly the independence of engagement personnel, required by AU-C Section 220.
- Establishing, communicating and documenting an understanding of engagement terms in an engagement letter as required by AU-C Section 210.
Practical
Considerations—Pre-planning Phase:
These activities are normally performed by an in-charge
accountant and/or an engagement leader.
- Obtain the prior year’s permanent, tax, correspondence and current files.
a.
Become familiar with the auditor’s report,
financial statements and footnotes.
b.
Determine that the reporting framework is
appropriate given the nature, size, and complexity of the client.
c.
If a change to a special purpose framework, IFRS
or IFRS for SMEs can reduce financial statement preparation time for the
client, as well as save audit engagement time, consult with the client and the
user of the financials to determine if a change is beneficial.
d.
Review the prior year’s risk assessment
procedures, levels of assessed risk, audit strategy and audit plan (program) to
determine if there are opportunities for changes that will save audit time
charges in the current year.
e.
Review the key forms, practice aids, working
papers, and other documentation in last year’s current file to determine any
client documents, unnecessary working papers or correspondence that can be
eliminated this year.
f.
Determine if it is possible to use the prior
year’s control risk assessment in the current year and if doing so
can reduce the current year’s risk assessment procedures and other substantive
tests.
g.
Read the internal control communication letter
and investigate the current status of significant deficiencies and material
weaknesses and their affects on the current year auditing procedures.
h.
Prepare a list of procedures and activities that
can be performed during interim work, make staffing requests and schedule the
interim work
i.
Determine if specialists will be needed, e.g.,
IT persons, attorneys, valuation experts, actuaries, etc.
j.
Prepare a list of schedules and other assistance
to request from client and deliver at least 30 days before the engagement date.
- Hold pre-planning meeting with in-charge accountant and engagement leader.
a.
Discuss client changes in business,
organization, accounting, internal control, personnel and current events that
may affect this year’s audit.
b.
Discuss any effects of the current economic
climate, any going concern issues and the need for management to develop plans
to overcome potential threats to the continuing existence of the entity.
c.
Discuss findings, questions and other issues
from the review of the prior year’s working papers.
d.
Schedule due dates, interim and year-end
fieldwork and assign staff personnel.
e.
Discuss fees, billing policies, budgets and
other administrative issues.
- Schedule time for engagement leader to meet with the management and governance persons that engaged the firm to deliver the engagement letter.
a. Reach
an understanding about the nature of the engagement, as well as client management
and CPA firm responsibilities.
b. Discuss
current client issues, including any affects of economic climate
c. Make
fraud inquiries.
d. Arrange
for proper workspace.
e. Arrange
for client assistance.
f.
Finalize dates for interim and year end
fieldwork.
g. Discuss
target dates.
h.
Discuss range of audit fees and effects of
variables (problems, no client assistance, etc.).
4. If possible, prepare a rough
draft or block out financial statements and footnotes for use in planning activities.
Part 2 will begin to discuss
planning requirements in AU-C Section 300, along with other practical planning
activities.
No comments:
Post a Comment