Audit Planning

Objective : to plan the audit so that it will be perform in an

effective manner .

Output of Planning (2)

Audit
1 .
strategy
2. Audit Plan

F- actors that appeals the Natures Extent

op Planing
i. Size and complexity
a. key engagement team members previous experience w/ entity
3- din the
circumstances that occur during engagement

4. Timing of the appointment of the Auditor

Major Planning Activities

t
2 3
identifying and assessing 42mm through understanding the entity
and it's environment

Planned RISK assessment procedure ^

Establish Overall Strategy Develop Audit Man
Identify and asses Risk of Material Mi statement

AUDIT PLAN
to establish overall strategy
Generally ; In order audit
plan
detailed than overall
-

Auditor shall
• more
strategy
i. Obtain an
understanding of the entity and its environment .

§!!!!!!
Identify risk of material misktement
s assess
pnimewak It Include descriptions
.

2.

i. Identify the characteristics of the reporting of

engagement that define its scope requirement i. N T E
-
-

of the risk assessment procedures

Detailed steps 2. ascertain the location
reporting objectives of components Further audit procedures
.

2.
OF the
obtdtadgfhnty engagement to plan
3. Other planned audit PSA 's
internal control
including it's Risk the timing and nature procedures required by
assessment
procedures
419nificant in directing
3. consider Factors that are

consider
Materiality the engagement teams ' effort AUDIT PROGRAM
Inherent risk
Contains !
'

4 Consider the result

.

Identify and assess the risk of material mi statement control risk

.

of preliminary engagement activities t

knowledge gained on other engagements performed by the i. audit objectives for each area
engagement partner to entity is relevant totter
significant
Determine the acceptable level of Audit risk
factors 2. N T E of audit
-
-

procedures required
to implement over all audit plan
5. ascertain the N T E of resources necessary
- -

3. time budget for various audit area /procedures

Identify detection risk to determine N T E of - -

further audit
procedures .

to perform the engagement .

serves as a:
Riskassessment
procedure :

1. set
of instructions
Objective :
obtain an understanding of the entity and its environment .tk Financial RF
proper execution
µ 1-
applicable means to control and record
2.
2.
Identify 4 assess RMM
OF work
why ? provide basis fir design
and implementation of response
to the assessed risk .

Communication phase
during planning
Auditor 0¥ with
entity's management
to facilitate the conduct and
management
of the audit engagement -

(e.g coordinate planned audit procedures w/ work

of personnel)
b-
4

Direction / Supervision and Review Other Planning Considerations

need
i. Determine the
of an auditors expert
1
expert in field other than
accounting or auditing
what happens ?
Auditor uses expert 's work to obtain sufficient appropriate audit evidence
internal Cinside the firm )
expert can be :

fwm
external (outside the firm )

Note : When an audit is carried out

by an entirely by an audit engagement partner 55010 )
His okay to consult w/ other suitably experienced auditors or auditors professional body
 ⑨ INHERENT RISK
at

@btadtadgfhnty
,
1 Fs level and Assertion level for classes of transactions
including it's internal control , RAP and Related Activities
( inherent rsk)
/accounts balances and disclosures
HOW ?
•

By performing risk assessment procedures

determine whether tguch risks

}
•

µ performing , use
professional skepticism appeals the assessment of risk @ take into account :
purpose : obtain sufficient appropriate ext denote assertion level
degree which inherent factors affect the
susceptibility to mistatement

meut]
unbiased manner i. the
remain alert to audit evidence that
•

" not biased Evaluate the Nature 4 Extent oftheir b4

•
consideration
For what ? Basis for of confab
.

pervasive effect on FS

identifying risk
of material mistake

design further audit

procedures Significant Risk
.

1- - an
Identified RMM
for which assessment of Inherent Risk is close to the
upper and oplhe Spectrum
.

Sources
of Audit evidence Responses to
significant risk
1. Identify controls that
Note : Auditor is NOT required to
identify ALL possible sources
of Audit exldenoe 2. test } actresses significant risks

3 Obtain more evidence

1-
Interaction w/ management TCWG ,
other key personell
identified
,
4- Communicate to TCWG the significant risk

5. Timely tell ew of document

2. External parties cnhelher gotten directly / indirectly )

3 Publicly available info about the

entity ⑤ Control risk assessment
process [ see Handouts for consideration of IC )
RHP CRISK assessmentprocedures )

i. Inquiry all to better understand

the entity 4 Determine the acceptable level of Audit risk
2. Observation

How to determine ? By professional judgement

3
Inspection linen) used in :

} :÷::÷
-

a. Substantive test
4. analytical procedure
steps :

i. Develop expectations regarding

FS accepted
2 Compare expectations ys Actual
Define and Investigate SIGNIFICANT differences Identify detection risk to audit
3
g-
determine N T E of - -

further procedures .

Detection risk -
Audit risk
✓ accepted

Inherent risk ✗ Control Risk

2 Consider
Materiality
How to determine materiality ?
When is
information material ?
Used of assessed level of DR
it's or mi statement
When omission could influence through !
the economic decisions of users .

whether Professional Judgement Lower DR Higher DR

aggregately
Natunemoreeffeohvepnceduteslessefpechvepnc.ec#
individual

depends on may be
applied may be
applied
nature and/or size timing .
Procedure Performed
year end -
closer to Procedure performed
dates
at interim or several

'

uses
of materiality in
planning Extent Larger sample size is tested smaller sample size is tested

statement
i. identify and asses risks of material

helps determine N T E
of audit procedures
inverse relationship
- '

2
Audit risk
-

Materiality vs :

Levels of materiality (3) the Higher the level the lower the and it risk
materiality
.

can be based on continued) .

}
' CFP )
benchmark ✗%
(overall Materiality ) determined at overall financial level total assets
statement total revenue CIS
represents the smallest aggregate
2

A. FS Materiality
amount of mi

that is Acceptable trail FS total income

ltolerablemistakment )
""a" Matri
}
"
4
"

(specific/ individual
B. Materiality to specific class
of transaction /account balance /disclosure materiality) -

expected uncorrected mistakemerits on

classes
of transaction
-

c. Performance Materiality calculated as certain materiality

g. of overall
(planning 1 scoping materiality ) ( total amount may
exceed overall materiality)

Audit Risk
risk material mistakemeat C inherent risk ✗ control risk )
of
components
risk of not detecting the mistntement (detection risk)

detection rusk = risk that SUB STAHNKE PROCEDURES

Will NOT detect a mistatement that could be material

Formula :

Audit risk =
ROMM ✗ RISK of non detection
OR

Inherent risk✗ control risk ✗ detection risk

3 Identify and assess the risk of material mistalement

① INHERENT RISK assec.me/-

process
:

objective to identify : how INHERENT risk

factors affect the susceptibility of assertions TO MLsHtEMENB

the preparation
in
of Fs .

result :
auditor knows how to and plan
perform
•

further audit procedures ENITFIEDRMM

asses
riske assertion level
.

effect on

FS
Petras we effect
-

on
@ FS level
.

assertion about class of transaction/ account balance /disclosure

}
i. Relevant assertions a
- -

- an

when it has an IDENTIFIED HSKOFNM

assess
ii significant class contains 1 more relevant assertions determines where
llkekhood 9
-
or

opgansach.ph/*pgpp
on

@ assertion level -

(magnitude of } mstatetnent ①
"
SPECTRUM
of
Inherent risk
"
is the
identified
② RMM
determines
-

significant risks