audit report.pptx

8/10/2019 Audit Report.pptx

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Group 3Espiritu, Keziah

Nabong, Dessirre John

Reyes, Jason


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Major Phases of an Audit

EngagementActivities

Planning

Test ofControls

SubstantiveProcedures

Completion

Reporting


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Considerations during EngagementActivities

EngagementActivities

Compliance withethical requirements

Client integrity Competence of theteam


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Accepting a New Client or Confirmingthe Continuance of a Current Client

Before the auditor can make theacceptance/continuance decisions, the auditor

and the client need to establish and understandthe terms of the services to be performed.


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This includes confirming that the engagement

complies with the five elements of an assuranceengagement as set out in the Framework, par. 20namely:

1 a three-party relationship;

2 appropriate subject matter;

3 suitable criteria;

4 sufficient appropriate evidence;5 written assurance report.


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Once the decision for acceptance/continuance

has been taken, the auditor and the client needto confirm the :

terms of the engagement by signing anengagement letter.

That includes

responsibilities of each party

assistance to be provided by client personnel andinternal auditors

timing of the engagement, and the expectedaudit fees.


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Consider AdditionalValue-Added Services As part of the engagement activities, the auditor

should look for opportunities to recommend

additional value-added services that include tax planning, transaction support, IT

consultancy, and internal reporting processes.

With auditors taking a more global view of theentity and its environment, there are newopportunities to provide valuable services for theclient.


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Preliminary Engagement

Activities


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Preliminary Engagement Activities

The auditor shall undertake the following activities atthe beginning of the current audit engagement:

Performing procedures required by PSA 220,Quality Control for Audits of Historical FinancialInformation regarding the continuance of the clientrelationship and the specific audit engagement;

Evaluating compliance with ethical requirements,

including independence, as required by PSA 220;and Establishing an understanding of the terms of the

engagement, as required by PSA 210, Terms ofAudit Engagements.


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Engagement partner

The partner or other person in the firm who isresponsible for the audit engagement and itsperformance, and for the auditors report that isissued on behalf of the firm, and who, whererequired, has the appropriate authority from a

professional, legal or regulatory body.


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Acceptance and Continuance of

Client Relationships and Audit

Engagements

The engagement partner shall be satisfied thatappropriate procedures regarding the

acceptance and continuance of clientrelationships and audit engagements have beenfollowed, and shall determine that conclusions

reached in this regard are appropriate.


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Relevant Ethical Requirements

Throughout the audit engagement, theengagement partner shall remain alert, through

observation and making inquiries as necessary,for evidence of noncompliance with relevantethical requirements by members of the

engagement team.


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Relevant Ethical Requirements

If matters come to the engagement partnersattention through the firms system of quality

control or otherwise that indicate that membersof the engagement team have not complied withrelevant ethical requirements, the engagement

partner, in consultation with others in the firm,shall determine the appropriate action.


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Independence

The engagement partner shall form a conclusion on compliance withindependence requirements that apply to the audit engagement. Indoing so, the engagement partner shall:

Obtain relevant information from the firm and, where applicable,

network firms, to identify and evaluate circumstances andrelationships that create threats to independence;

Evaluate information on identified breaches, if any, of the firmsindependence policies and procedures to determine whether theycreate a threat to independence for the audit engagement; and

Take appropriate action to eliminate such threats or reduce them toan acceptable level by applying safeguards, or, if consideredappropriate, to withdraw from the audit engagement, wherewithdrawal is permitted by law or regulation. The engagementpartner shall promptly report to the firm any inability to resolve thematter for appropriate action.


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Agreement on Audit Engagement

Terms The auditor shall agree the terms of the audit engagement

with management or those charged with governance, asappropriate.

The agreed terms of the audit engagement shall be recorded in

an audit engagement letter or other suitable form of writtenagreement and shall include:a) The objective and scope of the audit of the financial statements;b) The responsibilities of the auditor;c) The responsibilities of management;d) Identification of the applicable financial reporting framework

for the preparation of the financial statements; ande) Reference to the expected form and content of any reports to be

issued by the auditor and a statement that there may becircumstances in which a report may differ from its expectedform and content.


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Agreement on Audit Engagement

TermsIf law or regulation prescribes in sufficient detail the terms of the auditengagement, the auditor need not record them in a written agreement,except for the fact that such law or regulation applies and thatmanagement acknowledges and understands its responsibilities:i. For the preparation of the financial statements in accordance

with the applicable financial reporting framework, includingwhere relevant their fair presentation;ii. For such internal control as management determines is necessary

to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error; and

iii. To provide the auditor with:a. Access to all information of which management is aware that is relevant

to the preparation of the financial statements such as records,documentation and other matters;

b. Additional information that the auditor may request from managementfor the purpose of the audit; and

c. Unrestricted access to persons within the entity from whom the auditordetermines it necessary to obtain audit evidence.


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Steps of the Planning Phase

Planning

Understanding the entity and

its environment Understanding of internalcontrol

Asses risk of materialmisstatements

Calculate planning

materiality Response to assessed risk,audit strategy and audit plan


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Understanding the Entity and itsEnvironmentThe auditors understanding of the entity and itsenvironment should include information about eachof the following categories:

Industry, regulatory, and other external factors,including the applicable financial reportingframework.

Nature of the entity.Selection and application of accounting policies.Objectives, strategies and related business risks.Measurement and review of financial performance.Entitys internal control


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Preliminary Analytical Procedures As part of the planning process, the auditor may also

conduct preliminary analytical procedures (such as

ratio analysis) to identify specific transactions oraccount balances that should receive specialattention due to an increased risk of materialmisstatement.

The auditor compares actual ratios calculated toexpected ratios to identify balances with anincreased risk.


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For example, the expected gross profit marginand number of days in debt can only be

determined if the auditor has knowledge of theentitys profit mark-up percentage and thecompanys credit policy.


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Obtaining an Understanding of InternalControl Internal control is designed and affected by an

entitys board of directors, management, and

other personnel to provide reasonable assuranceregarding the achievement of objectives in thefollowing categories:

1 Reliability of financial reporting;2 Effectiveness and efficiency of operations;3 Compliance with applicable laws and

regulations.


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There are three main factors contributing to fraud:1 Pressure and incentive

2 Opportunity3 Rationalization and attitude.

Fraud can be classified into two categories:

1 Fraudulent financial reporting2 Misappropriation of assets.

The term non-compliancerefers to acts of omission

or commission by the entity, either intentional orunintentional, which are contrary to the prevailinglaws or regulations. In some instances, fraud may bea result of a non-compliance act.


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Calculate Planning Materiality

When calculating planning materiality, theauditor needs to apply professional judgment.

This judgment is founded on the knowledgealready obtained during the planning phase aswell as the risks identified from this knowledge.

The auditor considers materiality from theperspective of how the misstatements couldreasonably be expected to influence theeconomic decisions of users.


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Develop a Response to Assessed Risk,Overall Audit Strategy and Audit Plan This involves documenting the decisions about

the nature, timing, and extent of audit tests.

At this stage, the auditor compiles his or herknowledge about the clients business objectives,strategies, and related business and audit risks.

The auditor records how the client is managingits risks (ex. through internal control processes)and then documents the effect of the risks andcontrols on the planned audit procedures.


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Auditors ensure they have addressed the risks

they identified in their understanding of therisk-assessment process by documenting thelinkage from the clients business objectives and

strategy to audit plans


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EarthWear might look


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Audit Strategy

In determining the audit strategy, the auditorshould determine the scope of the engagement,ascertain the reporting objectives to plan the

timing of the audit, consider the factors that willdetermine the focus of the engagement teamsefforts (determination of appropriate materialitylevels, areas of high risk of materialmisstatement, etc.).

Developing the audit strategy helps the auditordetermine what resources are needed to performthe engagement.


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Audit Plan

In the audit plan, the auditor documents a description of

(1) the nature, timing, and extent of the planned risk

assessment procedures to be used,(2) the nature, timing, and extent of planned further auditprocedures at the assertion level for each class oftransactions, account balance, and disclosure, and

(3) a description of other audit procedures to be performed

in order to comply with auditing standards.

Basically, the audit plan should consider how to conductthe audit in an effective and efficient manner.


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When preparing the audit plan, the auditor

should be guided by the results of the riskassessment procedures performed to gain theunderstanding of the entity. Additional stepsthat should be performed include:

Assess business risks and establish materiality.Assess the need for experts.Consider the possibility of non-compliance with

laws and regulations (illegal acts).Identify related parties.Conduct preliminary analytical procedures.Consider additional value-added services.


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Planning Administration

The engagement partner or manager needs to ensurethat the audit team is composed of team members whocollectively have the appropriate audit and industryknowledge and experience for the engagement.

The partner or manager also determines whether theaudit will require IT or other types of experts (e.g.actuaries or appraisers).

All of the staff above needs to be booked on the auditengagement; otherwise, they might not be available to

perform the audit during the times arranged with theclient.

If the audit team need to travel to the client, e.g. a clientwith branches throughout the country, travel and

lodging arrangements also need to be made.


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Assess the Need for Experts Auditing standards (ISA 620) define an

auditors expert as an individual or organizationpossessing expertise in a field other than accountingor auditing, whose work in that field is used by theauditor to assist the auditor in obtaining sufficientappropriate audit evidence.

An auditors expert may be either an internal(partner or staff of the auditors firm) expert or anexternal (not employed by the auditors firm) expert.This would include experts in finance, tax, valuation,pension, and information technology (IT).


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Such experts may assist the auditor with measuringfair values, valuing financial instruments,

determination of physical quantities, amountsderived from specializedtechniques, or interpretations of regulations oragreements.

The auditor is still ultimately responsible for workperformed by the expert.

In relying on the expert, the auditor should evaluatecompetence and objectivity of the expert, audittheinputs used by the expert (e.g. census data foractuary) and tie out the output (e.g. estimate shouldbe found in the financial statements or disclosures),and reviewthe expert work for reasonableness,including the reasonableness of assumptions.


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Direction, Supervision and

Review


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Direction Assistants should be informed of their

responsibilities, the nature of the entitys

business, potential problems that may arise andthe detailed approach to the performance of theengagement.


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Supervision This involves monitoring the progress of the

audit, resolving accounting and audit issues, and

considering the level of consultation appropriatefor the engagement.


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Review Work performed by assistants should be

reviewed to consider whether the audit

procedures, evidence and documentation areappropriate to support the conclusion reached.


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Direction, Supervision and ReviewThe nature, timing and extent of the direction andsupervision of engagement team members and review oftheir work vary depending on many factors, including: The size and complexity of the entity. The area of the audit. The assessed risks of material misstatement (for

example, an increase in the assessed risk of material

misstatement for a given area of the audit ordinarilyrequires a corresponding increase in the extent andtimeliness of direction and supervision of engagementteam members, and a more detailed review of theirwork).

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