Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
8AUDIT PLANNING ANDDOCUMENTATION
AN AUDITOR WHO DOES NOT
UNDERSTAND A CLIENT’S BUSINESS
TAKES A GREAT RISK
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
1,Need an effective and efficient audit plan
2,Under-audit - see you in court
3,Over-audit - lose clients to competitors
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
1,Preplan
2,Obtain client background information
3,Obtain information about legal obligations
4,Perform preliminary analytical procedures
The work is to be adequately planned,and assistants,
if any,are to be properly supervised.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Preplan
Obtain background information
Obtain information about client’s legal obligations
Perform preliminary analytical procedures
Set materiality,and assess acceptable audit risk and inherent risk
Understand internal control and assess control risk
Develop overall audit plan and audit program
FIGURE 8 - 1 Planning an Audit and Designing an Audit Approach
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Do we want this client?
- Are we independent?
- Are we technically competent?
- Is client reputable?
Who will use financial statements?
(Key part of acceptable audit risk -
discussed in Chapter 8)
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Must obtain and document understanding (SAS #83)
Written engagement letter recommended
- Timing
- Fees
- Client assistance
- Other services
- Limits of audit
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Required by SAS #84 Purpose is to assesswhether to accept client
Successor Initiates
predecessor needs client
permission to
release information
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Usually review prior auditor working papers
- Determine whether problems exist
- Support beginning asset balances (Why?)
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Analytical procedures used in planning the audit
should focus on:
1,Material weaknesses in internal control.
2,Predictability of financial data from individual transactions.
3,The various assertions that are embodied in the
financial statements.
4,Areas that may represent specific risks relevant to the audit.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Identify Related Parties
Concern is that they are adequately disclosed
By nature,are not arm’s length
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
When auditing related party transactions,an
auditor places primary emphasis on:
Confirming the existence of the related parties.?
Verifying the valuation of the related parties.?
Evaluating the disclosure of the related party transactions.?
Ascertaining the rights and obligations of the related parties.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Used to address complex issues where auditor is not qualified
May be hired by client or auditor
Auditor should evaluate qualifications and relationship
with client
May refer to specialist in audit report only
when opinion is qualified or explanatory paragraph
added based on specialist’s report
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
SUMMARY OF THE PURPOSES
OF AUDIT PLANNING
A MAJOR PURPOSE IS TO PROVIDE INFORMATION
TO AID THE AUDITOR IN ASSESSING ACCEPTABLE
AUDIT RISK AND INHERENT RISK.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Purposes of Working Papers
Ownership of Working Papers
Confidentiality of Working Papers
Contents and Organization
Permanent Files
Current Files