审计学一种整合方法15版英文教辅资源 arens15_irm_08

Chapter 8

Audit Planning and Analytical Procedures Chapter 8 emphasizes understanding the client’s business and industry and assessing client business risk, two concepts that are receiving increased emphasis in audit practice. This chapter highlights the importance for auditors to really understand the nature of their client’s business especially in light of its industry, the economy, and the impact of regulation on its business model. This chapter begins laying the foundation for the importance of knowing your client to recognize how business risks may lead to increased risks of material misstatements that we’ll discuss in more depth in later chapters. This can be a fun chapter for students as it brings together many of the issues addressed in other business classes, such as their strategy or organizational behavior classes.

The following are the topics we cover:

⏹Chapter opening vignette

⏹Purpose and methodology of audit planning

⏹Client acceptance and continuance

⏹Obtain knowledge of client’s industry and business

⏹Assess client business risk

⏹Analytical procedures

Chapter Opening Vignette ― “The Fall of Enron:

Did Anyone Understand Their Business?”

The bankruptcy of Enron is used to illustrate how important understanding a client’s business is to conducting an adequate audit, which is emphasized in the Performance Principle in AICPA auditing standards and in the second standard of fieldwork in the PCAOB ten GAAS standards. Enron was involved in new markets as a result of deregulation and the development of new financial trading instruments. It also engaged in complex arrangements with related parties. Many argue that members of the board of directors, senior management, and the auditors, among others, had a poor understanding of the nature of the business and related business risks at Enron. You might ask students what they know about Enron, and how an auditor could evaluate the risks from new markets and related party transactions. We note that related parties have been present in many other significant legal cases involving auditors.

Purpose and Methodology of Audit Planning (page 208)

The effect of planning on audit efficiency and effectiveness is the major emphasis in discussing the purpose of planning.

Figure 8-1 (page 208) is the focal point for planning in Chapters 8 through 13 and we refer to it frequently. Only the first four sections are discussed in Chapter 8. We emphasize the items discussed in the following sections. Figure 8-5 (page 222) summarizes that discussion.

(See Figure 8-1; shown on Slide 8-6)

(See Figure 8-5)

Client Acceptance and Continuance (page 209)

We walk through students through some of the decisions that auditors need to make as outlined by auditing standards as they consider whether to accept a new audit client or continue serving as the auditor with existing clients.

⏹What are the requirements in auditing standards before the CPA accepts a

new audit client that was previously audited by another CPA firm? Problem

8-26 is good to test students’ knowledge of these requirements.

⏹How does the auditor assess industry risks and client business risks prior to

client acceptance?

⏹How do the results of the assessment affect client acceptance and evidence

accumulation?

Case 8-38 (part a.) is useful for illustrating the importance of client acceptance.

Because the Sarbanes–Oxley Act defines the audit committee as “the client,” it is important to emphasize that auditors of public companies need to obtain an understanding of the engagement with the audit committee. The PCAOB’s recently issued Auditing Standard No. 16, Communications with Audit Committees, requires the auditor of a public company to obtain a signed engagement letter from the audit committee annually.

Obtain an Understanding with the Client (page 211)

We highlight auditing standards requirements that the auditor document his or her understanding with the client about the terms of the engagement in an engagement letter. We lead of discussion of the following questions:

⏹What is an engagement letter and what should be in it?

⏹When should it be obtained?

We have students look at the example of an engagement letter contained in Figure 8-2 (page 212) as a way to debrief their answers.

(See Figure 8-2)

Understand the Client’s Business and Industry (page 214)

First we ask students to explain why it is important to understand the client’s business and how to do so. We remind students of the Performance Principle in