ACT-332 (Chapter 5).pptx for accounting principles

ACT-332 (Chapter 5).pptx for accounting principles

• 1.
  Chapter 5 Audit planning and Documentation
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  Audit planning The auditorsformulate an overall audit strategy which is translated into a detailed audit plan for audit staff to follow. "Audit planning" means developing a general strategy and a detailed approach for the expected nature, timing and extent of the audit. The auditor plans to perform the audit in an efficient and timely manner. In simple words, developing an overall strategy for the effective conduct and scope of the examination.
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  The importance ofplanning • Help the auditor devote appropriate attention to important areas of the audit. • Help the auditor identify and resolve potential problems on a timely basis. • Help the auditor properly organise and manage the audit so it is performed in an effective manner. • Assist in the selection of appropriate team members and assignment of work to them. • Facilitate the direction, supervision and review of work. • Assist in coordination of work done by auditors of components and experts.
• 5.
  The overall auditstrategy and the audit plan • The audit strategy:The overall audit strategy sets the scope, timing and direction of the audit, and guides the development of the more detailed audit plan. • The audit plan:The audit plan converts the audit strategy into a more detailed plan and includes the nature, timing and extent of audit procedures to be performed by engagement team members in order to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
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  Internal control
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  Internal control • Internalcontrol is the process designed and effected by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of the entity's objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations.
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  Control environment • Controlenvironment includes the governance and management functions and the attitudes, awareness and actions of those charged with governance and management concerning the entity's internal control and its importance in the entity.
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  Entity's risk assessmentprocess The auditor shall obtain an understanding of whether the entity has a process for: • Identifying business risks relevant to financial reporting objectives • Estimating the significance of the risks • Assessing the likelihood of their occurrence • Deciding upon actions to address those risks
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  Information system relevant tofinancial reporting The information system relevant to financial reporting is a component of internal control that includes the financial reporting system, and consists of the procedures and records established to initiate, record, process and report entity transactions and to maintain accountability for the related assets, liabilities
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  Control activities Control activitiesare those policies and procedures that help ensure that management directives are carried out.
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  Control activities
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  Monitoring of controls •Monitoring of controls is a process to assess the effectiveness of internal control performance over time. It includes assessing the design and operation of controls on a timely basis and taking necessary corrective actions modified for changes in conditions.
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  Tests of control Testsof control are tests performed to obtain audit evidence about the effectiveness of the: • Design of the accounting and internal control systems, ie whether they are suitably designed to prevent, or detect and correct, material misstatement at the assertion level; and • Operation of the internal controls throughout the period
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  Reporting
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  The auditor’s reporton financial statements • The auditor is required to produce an audit report at the end of the audit which sets out his opinion on the truth and fairness of the financial statements. The report contains a number of consistent elements so that users know the audit has been conducted according to recognised standards.
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  Unmodified auditor's report •An unmodified opinion is the opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
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  Modified opinions There arethree types of modified opinion: • a qualified opinion, • an adverse opinion, • and a disclaimer of opinion.
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  Qualified opinions
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  Adverse opinions • Anadverse opinion is expressed when the auditor, having obtained sufficient appropriate audit evidence,concludes that misstatements are both material and pervasive to the financial statements.
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  Disclaimers of opinion •An opinion must be disclaimed when the auditor cannot obtain sufficient appropriate audit evidence on which to base the opinion and concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. The opinion must also be disclaimed in situations involving multiple uncertainties when the auditor concludes that, despite having obtained sufficient appropriate audit evidence for the individual uncertainties, it is not possible to form an opinion on the financial statements due to the potential interaction of the uncertainties and their possible cumulative effect on the financial statements.
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  Example report tomanagement