Audit Planning and Risk Assessment

4003 Words Feb 12th, 2013 17 Pages
ACCA Paper F 8

AUDIT AND ASSURANCE SERVICES (INTERNATIONAL STREAM)

Lecture 2

Audit Planning and Risk Assessment

DATE: December 2012

TUTOR: Feroza Cooper

ISA 300 AUDIT PLANNING

Auditors should plan the audit so that the engagement is conducted in an effective manner.

The objectives of planning include:-

• Directing appropriate attention to the different areas of the audit such as assessing materiality, so that when the detailed audit plan is prepared, audit procedures can be directed towards the material amounts. • Identify potential problems or risks so that they can be resolved at an early stage. • Facilitate review and control of the audit.
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The auditor must obtain an understanding of the entity and its environment, including internal controls, so that they can identify and assess the risks of material misstatement on financial statements due to fraud or error and design and perform further audit procedures.

The objective is to ensure that auditors obtain sufficient knowledge of the business of the entity to enable them to identify and understand the events, transactions or practice that may have a significant effect on the financial statements or the audit. This knowledge of the business helps to assess the levels of control and inherent risk and to determine audit procedures.

Procedures to follow:- • Enquiry of management • Analytical procedures. • Observation and inspection.

Advantages of Risk Assessment • Ensures that attention is focused early on the areas most likely to cause material misstatements. • Allows auditor to fully understand the entity. • Allows the auditor to identify unusual transactions or balances as early as possible so that these could be addressed in a timely manner. • Permits the audit team to focus on key areas. • Ensure that an experienced team is selected with more experienced staff allocated to higher risk audits and high risk balances. • Reduces the risk of an inappropriate audit opinion being given. • Permits the auditor to have a good understanding
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