Audit-Planning-and-Analytical-Procedures

Learning Objective 6
State the purposes of analytical procedures and the timing of each purpose.
Analytical Procedures
Analytical procedures use comparisons and relationships to assess whether account balances or other data appear reasonable. SAS 56 emphasizes the expectations developed by the auditor.
affecting business risk
Key Parts of Planning
Perform Preliminary Analytical Procedures
Summary of the Purposes of Auditing Planning
A major purpose is to gain an understanding of the client’s business and industry.
Information
Global
technology operations
Human capital
Understanding of the Client’s Business and Industry
Understand Client’s Business and Industry Industry and External Environment Business Operations and Processes Management and Governance Objectives and Strategies Measurement and Performance
Auditors should understand client objectives.
Financial reporting reliability
Effectiveness and efficiency of operations
Compliance with laws and
regulations
Management and Governance Objectives and Strategies
Measurement and PFra bibliotekrformance
Assess Risk of Material Misstatements
Learning Objective 5
Perform preliminary analytical procedures.
Understand internal control and assess
control risk
Develop overall audit plan and audit program
Learning Objective 2
Make client acceptance decisions and perform initial audit planning.
Acceptable audit risk
Inherent risk
Planning an Audit and Designing an Approach
Accept client and perform initial audit planning
Understand the client’s business
Staff the engagement
Key Parts of Planning
Understand the Client’s Business and Industry
Understand client’s industry
and external environment
Understand client’s operations,
Inherent risks common to all clients in certain industries Unique accounting requirements
Business Operations and Processes
Factors the auditor should understand: – major sources of revenue – sources of revenue
Industry and External Environment
What are some reasons for obtaining an understanding of the client’s industry
and external environment? Risks associated with specific industries
Initial Audit Planning
Client acceptance and continuation Identify client’s reasons for audit. Obtain an understanding with the client. Select staff for the engagement.
– unit sales growth
– Web site visitors
– same-store sales
– sales/square foot
Performance measurement includes ratio analysis and benchmarking against key competitors.
of directors and the audit committee. Corporate charter and bylaws Minutes of meetings
Client Objectives and Strategies
Strategies are approaches followed by the entity to achieve organizational objectives.
Ability to Meet Long-Term Obligations Debt to equity
Profitability Return on assets
Client 3.86 3.46 1.73 0.09
Industry 5.20 5.20 2.51 0.09
Key Parts of Planning
– key customers and suppliers – sources of financing
– information about related parties – ability to obtain financing
Management and Governance
Management establishes the strategies and processes followed by the client’s business. Governance includes the client’s organizational structure, as well as the activities of the board
Learning Objective 4 Assess client business risk.
Assess Client Business Risk
Client business risk is the risk that the client will fail to achieve its objectives. What is the auditor’s primary concern? – material misstatement of the financial statements due to client business risk
Accept Client and Perform Initial Planning
New client acceptance and
continuance
Obtain an understanding
with client
Identify client’s reasons for the audit
and industry
Assess client business risk
Perform preliminary analytical procedures
Planning an Audit and Designing an Approach
Set materiality, and assess acceptable audit risk and inherent risk
Learning Objective 3
Gain an understanding of the client’s business and industry.
Understanding of the Client’s Business and Industry
What are some factors that have increased the importance of understanding the client’s business and industry?
Preliminary Analytical Procedures
Comparison of client ratios to industry or competitor benchmarks provides an indication of the company’s performance. Analytical procedures are also an important
part of testing throughout the audit.
Examples of Planning Analytical Procedures
Selected Ratios Short-Term Debt-Paying Ability Current ratio Liquidity Activity Ratio Inventory turnover
The Client’s Business, Risk, and Auditor’s Risk Assessment
Understand Client’s Business and Industry
Assess Client Business Risk
Industry and External Environment Business Operations and Processes
Audit Planning and Analytical Procedures
Learning Objective 1
Discuss why adequate audit planning is essential.
Planning
The work is to be adequately planned, and assistants, if any, are to be properly supervised.
strategies, and performance system
Key Parts of Planning
Assess Client Business Risk
Assess client business risk
Assess risk of material misstatements
Evaluate management business controls
Measurement and Performance
The client’s performance measurement system includes key performance indicators. Examples:
– market share
– sales per employee