(S2) Audit & Assurance Presentation - Copy.pptx

Audit presentation of ICMAP

1. Audit & assurance (s2) Audit Presentation agenda: Isa-300 Planning an audit of financial statements

2. isA-300 Planning an audit of financial statements Objectives of planning benefits of planning What factors should consider prior risk assessment Factors effecting planning activities Who should participate in planning Preliminary engagement activities Planning activities (overall audit strategy and audit plan) Documentation Additional consideration in initial audit engagement

3. Objectives of planning: The objective of the auditor is to plan the audit so that it will be performed in an effective manner. Planning ensures that the risk of performing a poor quality audit (and ultimately giving an inappropriate audit opinion) is reduced to an acceptable level. In order to achieve the overall objectives of the auditor, the audit must be conducted in accordance with ISAs .

4. Benefits of planning: Helps to devote appropriate attention to important areas of audit. Helps identify and resolve potential problems on a timely basis. Helps auditor properly organize and manage the audit. Helps in assignment of engagement team members and audit work. Facilitating direction, supervision and review of audit work. Assisting in coordination of work done by component auditors and experts.

5. Factors to be considered before risk assessment: Planning includes need to consider, prior to risk assessment , such matters as: Analytical procedure to be applied as risk assessment procedure Obtaining general understanding of the legal and regulatory framework of the entity. Determination of materiality. Involvement of experts. Performance of other risk assessment procedures.

6. Factors effecting planning activities: Planning activities vary according to: Size of the entity. Complexity of the entity. Team member's previous experience with entity. Changes in circumstances occurring during audit.

7. Who should participate/involve in planning: Engagement partner and other key members shall be involved in the planning. Note: Auditor may discuss planning with management to facilitate management of the audit, but should not compromise the effectiveness of the audit by making audit procedures too predictable.

8. Preliminary engagement activities: Auditor shall undertake the following activities at the beginning of current audit engagement: Procedures regarding acceptance/continuance of client. Evaluating compliance with ethical requirements. Establishing an understanding of terms of engagement. It enables auditor to plan an audit engagement for which: Auditor maintains necessary independence and ability to perform the engagement. No issues with management integrity affecting auditor's willingness to continue engagement There is no misunderstanding with the client as to the terms of the engagement.

9. Planning activities: Overall Audit Strategy: Establishing the overall audit strategy means “Sets Scope, Timing and Direction for engagement” Audit Plan: Developing audit plan includes “Nature, Timing and Extent of audit procedures to be performed by engagement team for each area of financial statements”.

10. Overall Audit Strategy: Establishing overall audit strategy assists auditor to determine: Resources to deploy for specific audit areas (e.g. experienced team members for risky areas) Amount of resources to allocate to specific audit areas (e.g. number of team members) Timing of deployment of these resources (e.g. whether interim audit stage or at cutoff dates) How these resources are managed, directed and supervised?

11. Audit plan: Once the audit strategy has been established, the next stage is to develop a specific, detailed plan to address how the various matters identified in the overall strategy will be applied. The strategy sets the overall approach to the audit, the plan fills in the operational details of how the strategy is to be achieved. The auditor shall develop an audit plan that shall include a description of the nature, timing and extent of planned risk assessment procedures and further audit procedures.

12. Difference between overall audit strategy and audit plan: Audit Strategy and its Contents: Definition: Audit strategy sets the Scope, timing and direction of audit and guides the development of the audit plan. Matters documented in audit strategy: Characteristics of the engagement that determine its scope Reporting objectives, timing of audit and nature of communications Significant factors, preliminary engagement activities Resources necessary to perform the engagement Results of preliminary engagement activities

13. Audit Plan and its Contents: Definition: The Audit plan is more detailed than the overall audit strategy and includes the nature, timing and extent of audit procedures to be performed by engagement team members on each area of financial statements. Matters documented In audit plan: The audit plan should include specific descriptions to be documented : The nature, timing and extent of risk assessment procedures. The nature, timing and extent of further audit procedures, including: – What audit procedures are to be carried out – Who should do them – How much work should be done (sample sizes, etc.) – When the work should be done (interim vs. final) Any other procedures necessary to conform to ISAs.

14. Relationship between audit strategy and audit plan:

15. Documentation: The audit strategy and the audit plan must be documented in the audit working papers. Any updates to them must also be documented. The overall audit strategy; The audit plan Any significant changes made during audit to above two and reasons for such change.

16. Additional considerations in initial audit engagement: Performing procedures regarding acceptance of client relationship and specific audit engagement. Prior to starting an initial audit, auditor shall communicate with predecessor auditor , in compliance with ethical requirements . Additional matters he may consider in establishing overall audit strategy & audit plan includes: Arrangements to be made with predecessor auditor e.g. reviewing auditor’s working papers. Any major issues discussed with management in connection with initial selection as auditor, communicating matters to those charged with governance and how these matters affect the overall planning. Procedures necessary to obtain sufficient appropriate audit evidence for opening balances. Other procedures required by firm's system of quality control for initial audits. (e.g. involvement of another partner or senior individual to review planning activities)