Preliminary audit plan
Audit planning notes
The CPA firm should conduct an investigation of a company to assess its desirability as a client. Note that the ratios include several categories--short term debt-paying ability, liquidity activity ratios, ability to meet long term obligations, and profitability ratios. PSI is a private company that sells and installs computer networks for businesses in the Toronto area. Justify your response. Select Staff for the Engagement: The staffing of the audit must meet the first general standard of the Generally Accepted Auditing Standards relating to adequate technical training and proficiency. The auditor must also consider the external environment in which a company operates--the economic situation, regulatory requirements, and other factors. Various contracts, debts, pension plans, leases, and other legal documents should be reviewed with the purpose of evaluating the client's legal compliance. SAS 73 AU sets requirements for selecting and reviewing the work of specialists. In looking at the text it can be seen that materiality is taken very seriously by the auditor See Exhibit — Materiality Assessment Worksheet 32 Cumulative Effects of Errors Auditors must consider the sum of known or potential misstatements. Preliminary analytical procedures also: In addition, the auditor should analyze the cash flow statement for irregularities, such as cash deficits from operations. By engaging in this advance work, the auditors can reduce the volume of activities that must be completed after the client has closed its books, which has the following benefits: The auditors shift work out of their core work period, when many clients want to have audits completed. Acceptable audit risk measures how willing the auditor is to accept that the financial statements may be materially misstated at completion of the audit. Consent allows the predecessor auditor to relay more information. Additional specialists should also be considered, if appropriate.
Explain your response in terms of the purposes of communications between predecessor and successor auditors. Various contracts, debts, pension plans, leases, and other legal documents should be reviewed with the purpose of evaluating the client's legal compliance.
Rhea is a manufacturer of high-fashion clothing.
Inherent risk measures the likelihood of a material misstatement before considering the effectiveness of internal control. Audit planning consists of eight steps, illustrated in Table Accept the client and perform initial audit planning Understand the client's business and industry Assess client business risk Set materiality and assess acceptable audit risk and inherent risk Understand internal control and assess control risk Gather information to assess fraud risks Develop overall audit plan and program Only the first four of the steps listed above are covered in this chapter.
Its shares are publically traded, but a majority of the common shares are held by members of the family that started the business during the s. These two measures of risk are important in determining the quantity of evidence that must be accumulated.
Also, remember that in this chapter, only the first four steps are presented, and that the other four steps will be introduced later.
PSI is a private company that sells and installs computer networks for businesses in the Toronto area.
Justify your response. In your explanation identify the assertion s violated by this error. For a continuing client, the auditor must reflect upon previous relations with the client, evidence of the client's integrity, whether the audit fees have been paid which could introduce an independence violation if the fees are one year or more in arrears , and the industry in which the client operates. PSI has four shareholders who are all actively involved in the business. In particular: must be considered material. The auditors can issue opinions faster than might otherwise be the case. For a small firm or client, audit team may be just one or two people.
In particular: must be considered material. There are a number of tasks that can be completed during a preliminary audit, including the following: Examination of client controls Preliminary analysis of account balances Adjustment of planning for subsequent audit work, based on the first two items No audit report is issued as part of a preliminary audit; instead, this work should be considered an early phase of the regular audit that an organization undergoes.
based on 19 review