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Copyright 2006, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin November 2008 Audit Planning Methodology Senior Auditor

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 2 of 74 McGraw-Hill/Irwin Establish engagement objective 1. Understand scope of services and service requirements 2. Identify and orient the audit team Understand business and establish audit strategy Inherent risk 3. Understand the business 4. Assess internal control at the entity level and the risks of fraud 5. Develop the preliminary audit strategy Control risk 6. Understand and evaluate the flow of significant classes of transactions and sources of information and related control 7. Perform test of control 8. Perform the risk assessments and develop substantive audit procedures Perform audit procedures 9. Perform Analytical and data analysis procedures 10. Perform test of details 11. Perform General audit procedures Conclude the audit and assess performance 12. Conclude the audit 13. Assess client satisfaction 14. Assess the performance Audit Methodology

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 3 of 74 McGraw-Hill/Irwin 1. Understand scope of services and service requirements . . ( ) . . Establish Engagement Objective

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 4 of 74 McGraw-Hill/Irwin 2. Identify and orient the audit team . : . : . . . . ( ) Establish Engagement Objective

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 5 of 74 McGraw-Hill/Irwin 2. Identify and orient the audit team Audit Quality Program Orient the Team Team Planning Event Post-Interim Event Warp-Up Fieldwork Execution Fieldwork Execution -------------------------------------- Audit Workflow Establish Engagement Objective

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 6 of 74 McGraw-Hill/Irwin . ( ) . . () . ( ) Establish Engagement Objective

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 7 of 74 McGraw-Hill/Irwin 3. Understand the business Understand business and establish audit strategy Nature of Entity Key Business Risk Financial Statement / Internal Control Implications Business Objective, Strategies, CSFs Key Financial Performance Measures Key Market Forces and Environment Key Stakeholder Influences Significant Risks Internal Control / Fraud Considerations Long Term Short Term

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 8 of 74 McGraw-Hill/Irwin 3. Understand the business : . ( ) . . . . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 9 of 74 McGraw-Hill/Irwin 3. Understand the business . . . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 10 of 74 McGraw-Hill/Irwin 3. Understand the business : Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 11 of 74 McGraw-Hill/Irwin 3. Understand the business Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 12 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud 1. . . 2. . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 13 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud : : . . : . : . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 14 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud : . : . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 15 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud . . . : . . . . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 16 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud . ( ) . ( ) . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 17 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud 3. . / . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 18 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud . . ( ) . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 19 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud 4. . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 20 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 21 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud : 1. . 2. . 3. . 4. . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 22 of 74 McGraw-Hill/Irwin 4. Assess internal control at the entity level and the risks of fraud 5. . 6. . 7. . 8. . 9. . 10. . 11. . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 23 of 74 McGraw-Hill/Irwin Preliminary Audit Strategy Planning Materiality PM Planning Materiality PM Small Audit Difference s SAD Nominal Amount Small Audit Difference s SAD Nominal Amount Tolerable Error TE Tolerable Error TE Understand business and establish audit strategy 5. Develop the preliminary audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 24 of 74 McGraw-Hill/Irwin 6. Understand and evaluate the flow of significant classes of transactions and sources of information and related control . . : 1. . 2. . 3. . 4. . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 25 of 74 McGraw-Hill/Irwin 6. Understand and evaluate the flow of significant classes of transactions and sources of information and related control : : 1. ( ) . 2. . 3. / . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 26 of 74 McGraw-Hill/Irwin 6. Understand and evaluate the flow of significant classes of transactions and sources of information and related control : 1. . 2. . 3. . 4. . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 27 of 74 McGraw-Hill/Irwin 6. Understand and evaluate the flow of significant classes of transactions and sources of information and related control ( ). : 1. . 2. ( ). 3. . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 28 of 74 McGraw-Hill/Irwin 6. Understand and evaluate the flow of significant classes of transactions and sources of information and related control : : . : . . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 29 of 74 McGraw-Hill/Irwin 6. Understand and evaluate the flow of significant classes of transactions and sources of information and related control : . . . . : 1. / . 2. . 3. . 4. / / . 5. / . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 30 of 74 McGraw-Hill/Irwin 6. Understand and evaluate the flow of significant classes of transactions and sources of information and related control : 1. . 2. ( ) ( ). 3. . 4. . 5. ( ). Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 31 of 74 McGraw-Hill/Irwin 7. Perform test of control . . : . . : 1. . 2. ( ). 3. . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 32 of 74 McGraw-Hill/Irwin 7. Perform test of control (Walk-through): . . ( ) . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 33 of 74 McGraw-Hill/Irwin 7. Perform test of control : 1. ( ). 2. . 3. . 4. . . . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 34 of 74 McGraw-Hill/Irwin 7. Perform test of control : . . : . / . . . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 35 of 74 McGraw-Hill/Irwin 7. Perform test of control . / . . . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 36 of 74 McGraw-Hill/Irwin 7. Perform test of control . . : 1. . 2. . 3. . 4. . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 37 of 74 McGraw-Hill/Irwin 7. Perform test of control . . : 1. : . 2. : . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 38 of 74 McGraw-Hill/Irwin 7. Perform test of control : . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 39 of 74 McGraw-Hill/Irwin 7. Perform test of control . : 1. ( ) . 2. ( ). Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 40 of 74 McGraw-Hill/Irwin 7. Perform test of control . : 1. . 2. ( ) . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 41 of 74 McGraw-Hill/Irwin 7. Perform test of control 3. . . . . 4. . : 5. . 6. . 7. . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 42 of 74 McGraw-Hill/Irwin 7. Perform test of control . . ( ). Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 43 of 74 McGraw-Hill/Irwin 7. Perform test of control . : 1. . 2. . 3. . . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 44 of 74 McGraw-Hill/Irwin 7. Perform test of control . . . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 45 of 74 McGraw-Hill/Irwin 7. Perform test of control . . . (ACL) . Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 46 of 74 McGraw-Hill/Irwin 7. Perform test of control Understand business and establish audit strategy

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Copyright 2006. The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 47 of 74 McGraw-Hill/Irwin 7. Perform the risk assessments and develop substantive audit procedures Understand business and establish audit strategy