F F S

E W O S
ERV I C E S
V
O DIT P R O
AU RT 2
PA
P HA
SES
OF T
H
E AU
PRO DIT
CESS
 t
Audi
ss
Proce
of the
1. PRE-ENEGAGEMENT
- Carrying out the initial objectives,
such as client acceptance and
s

continuance, and agreement on the

Phase

terms of engagement.
 t
Audi
ss
Proce
of the

2. AUDIT PLANNING
- Developing an overall audit strategy
s

and preparing the detailed audit plan.

Phase
 t
Audi
ss
3. STUDY EVALUATION OF

Proce
INTERNAL CONTROL
of the
- Documentation and evaluating the
auditor’s understanding of the internal
control structure of the client. Based
s

on the understanding of internal

Phase

control, the auditor assesses risk and

determines the appropriate audit
approach.
 t
Audi
ss
4. SUBSTANTIVE TESTING

Proce
Gathering of evidence regarding
management’s assertions by performing
of the

substance audit procedure.

s

5. COMPLETING THE AUDIT

Phase

Wrapping-up procedures and

review of audit conclusions prior to
issuance of the audit report.
 t
Audi
ss
Proce
6. ISSUANCE OF THE AUDIT
of the
REPORT
Preparation and issuance of the
audit report.
s
Phase

7. POST-AUDIT RESPONSIBILITIES
- debriefing.
 P HA
SES
OF T
H E AU
PRO DIT
PRE- CESS
ENG
AGE
MEN
T PR
OCE
DUR
ES
 t
emen
dures
1. Auditor shall determine whether the
financial reporting framework to be
ngag
Proce
applied in the preparation of the
financial statements is acceptable; and
Pre-e

2. Obtain the agreement of

management that it acknowledges and
understands its responsibilities.
 (i) Preparation of FS in accordance
with applicable financial reporting

t
framework.

emen
dures
(ii) For such internal control that the
management deemed necessary to
ngag
Proce enable the FS preparation free from
material misstatement, whether due to
fraud of error.
Pre-e

(iii) Provide the auditor:

- Access to all information
- Additional information upon
request.
- Unrestricted access to persons
within the entity.
 nt
Form
 What is the form of organization?
e Clie Brief description of the business.
Who are the officers?
ation
ectiv

To whom shall the auditor report?

Evalu

 Any possible conflict of interest?

Prosp

Why is prospective client considering

the auditor?
Who is the current and prior auditor?
TERM
ENG S OF T
AGE HE
MEN
T
 After a decision is made to accept or

s of
nt
continue an engagement, an agreement

geme
Term should be reached with the client ,
preferably through the audit committee,
and audit engagement letter is prepared.
Enga

An auditor’s engagement letter to his

client documents and confirms his
acceptance to the appointment, the
objective and scope of the audit, the
extent of his responsibilities to the
client and the forms of any reports.
 s of
nt
The auditor should consider other

geme
Term relevant considerations to have
adequate basis in evaluating the
acceptability of a prospective client.
Enga

The auditor and the client should agree

on the terms of the engagement and
must be documents in the engagement
letter of any other form of contract.
 f an
tter
ents o Management Responsibility

nt Le Inherent Limitations
Scope of the Audit
geme
Cont

Unrestricted Access
Reports
Enga

Objective of the Audit

Time Table and Fees
 When the auditor of a parent entity is
also the auditor of its subsidiary, branch

nents
or division (component), the factors
that influence the decision whether to
ompo send a separate engagement letter to the
component include:
t of C

1. Who appoints the auditor of the

component.
2. Whether a separate audit report is to
Audi

be issued to the component.

3. Legal requirements.
 nents
4. The extent of any work performed by
ompo other auditors.
5. Degree of ownership by parent.
6. Degree of independence of the
t of C

component’s management from the

parent entity.
Audi
 dits
u
ing A On recurring audits, the auditor should
consider whether circumstances require
the terms of the engagement to be
rr

revised and whether there is a need to

Recu

remind the client of the existing terms

of the engagement.
 A request from the client for the auditor
to change the engagement may result

the
nt
from:

geme
ges in
1. A change in circumstances affecting
Enga
the need for the service.
Chan

2. A misunderstanding as to the nature

of an audit or related service originally
requested or
3. A restriction on the scope of the
engagement, whether imposed by
management or caused by
circumstances.
 the
nt
geme
ges in
A change would not be considered
Enga
reasonable if it appeared that the
Chan

change relates to information that is

incorrect, incomplete, or otherwise,
unsatisfactory.
 the
nt
geme
ges in
Before agreeing to change an audit
engagement to a related service, and
Enga
auditor who was engaged to perform an
Chan

audit in accordance with the PSAs

would consider, in addition to the
above matters, any legal or contractual
implications of the change.
 If the auditor concludes that there is a

the
reasonable justification to change the

nt
engagement and if the audit work
geme
pting
performed complies with the PSAs
applicable to the changed engagement,
Enga
Acce

the report issued would be that

appropriate for the revised terms of
engagements.

Where the terms of the engagement are

changed, the auditor and the client
should agree on the new terms.
 The auditor should not agree to a
change of engagement where there is

n
nt
nge i
not justification for doing so.

geme
a C ha
If the auditor is unable to agree to a
Enga
change of the engagement and is not
permitted to continue the original
engagement, the auditor should
ting

withdraw and consider whether there is

any obligation, either contractual or
Rejec

otherwise, to report to other parties,

such as those charged with governance
or shareholders, the circumstances
necessitating the withdrawal.
P HA
SES
OF T
H E AU
PRO DIT
CESS
AUD
IT PL
ANN
ING
 ning
t Plan
Planning involves establishing the
overall audit strategy of the
Audi

engagement and developing an audit

plan.
P HA
SES
OF T
H E AU
PRO DIT
STUD
Y AN CESS
D EV
INTE AL U
RNA ATIO
L CO N OF
NTR
OLS
 Intern ation of
STEPS:

ntrol
1. Obtain and document an
understanding of internal control.
al Co
2. Make a preliminary assessment of
l u

control risk
d Eva

3. Determine the auditor’s response to

the risk assessment.
an

4. Reassess control risk.

Study

5. Determine the nature, timing, and

extent of substantive testing.
 P HA
SES
OF T
H E AU
SUBS P DI T
TAN
TIVE ROCE
TEST
ING
S S
(EVI
D
GATH ENCE-
ERIN
G)
 Substantive tests are procedures used to

g
Testin
detect material misstatements in
account balances, classes of
e transactions and disclosures.
tantiv

These can be classified as:

1. Test of details
Subs

1. Account Balances
2. Classes of Transactions

2. Or Substantive Analytical Procedure.

P HA
SES
OF T
H E AU
PRO DIT
CESS
COM
PLET
I NG T
HE A
UDIT
 After all the previous steps in the audit

di t
process have been accomplished, the
auditor:

u
the A 1. Performs final analytical procedures.
2. Read minutes of recent board and
committee meetings.
g
pletin

3. Obtains management representation

letters.
4. Makes final materiality judgement.
Com

5. Summarizes and evaluates the audit

findings,
 di t
u
the A 6. Reviews the working paper
7. Reviews the financial statement
g
presentation and disclosures for
pletin

adequacy; and
8. Considers subsequent events.
Com
P HA
SES
OF T
ISSU
H E AU
ANC
P D I T
E OF R
THE OCE
ITORSS
AUD
REPO ’S
RT
 inion
d Op
- Communicates the favourable signal
about financial position, result of
alifie

operations, and cash flows.

Unqu
 ns
pinio
O
Communicates a favourable signal
ified

about financial statements, but with

modifications.
Qual
 n
pinio
- Communicates an unfavourable
signal. Usually an adverse is issued
rs e O
when the conditions are appropriate for
a qualified opinion, yet the issue
Adve

leading to qualification is so material

that a less favourable signal is
warranted.
 ion
Opin
r of Signals that the auditor does not
express and opinion.

 typically results in an explanatory

aime

paragraph followed by a paragraph

stating that an opinion is expressed.
Discl
P HA
SES
OF T
H E AU
P DI T
POST
-AUD ROCE
IT RE
SPON SS
SIBIL
ITIES
 iefing
Debr
1. Considering events during the audit.
2. Analyzing the activities within the
audit.
3. Producing recommendations.